Currencies' Relative Performance Since The USD Low

Yesterday I was talking with a friend who was telling me that it was his dad's 63rd birthday on Sunday.  Craig went golfing with his dad that day on a beautiful long Labour Day weekend.  [I'd better also spell it 'Labor Day' for our American friends or they won't have a clue what I'm talking about.  Just a courtesy to our pals south of the border who are still the only country in the English speaking world who can't handle 'u's where they 'think' they don't belong, lol.]

Anyway, Craig informed me that he'd also bought his dad a birthday present, a nice big juicy beef roast.  The price? $64.00.  Apparently my friend also had plans on dining at his dad's house after putting in 18 holes and shooting a score of 82.  But all this reminded me of one vision I remember from my youth, back in the days when I was an 11 year baseball star.  At least I thought I was a star.  My team mates thought I was the designated base stealer.  In any case the image came back to me as vividly as if it had been only yesterday.  I don't know why I have such a sharp memory for what seems like every day of my childhood, but whether that be a good thing or a bad thing... I do.  I remember incidents and conversations between adults when I was 2 years old and even younger.  I remember their names and faces... even as my mother was holding me in her arms while shopping for some sort of cloth.  Mrs. Reach was commenting on my eyes.  I remember riding my little bicycle as fast as I could on the sidewalk one day, turning the corner sharply only to slam into Mr. Eckmeyer's big belly as he came walking around that same corner.  Needless to say it wasn't Mr. Eckmeyer who got bounced 30 feet.  I've always been thankful that his big belly was soft or I'd still be picking my teeth out of the back of my skull to this day.  What a face plant that was!  Probably a record breaker but I digress...

My younger brother and I had piled into our dad's old '52 Chevy on a bright and sunny Saturday morning with our parents and we headed off to the local shopping center to hit up the old food mart.  No we didn't rob it, my folks had a few dollars.  Yes we were poor and the green Chevy was an old car even for back then.  But we had enough money for groceries.

About an hour and a half after leaving the house, my brother and I found ourselves sitting in the back seat of the car once again with grocery bags piled up so high between us that we couldn't even see each other, grocery bags between our feet and grocery bags in our laps.  The trunk was so full of groceries that when my dad finally coaxed it shut the watermelon exploded.  Our mom was sitting in the passenger's seat with grocery bags piled up between her and our dad, groceries on the floor between her feet and groceries in her lap.  My dad had a bag of groceries on his lap and a 10 lb. bag of potatoes hanging from his face, the bag clenched firmly between his teeth.  Yup, we'd gone grocery shopping alright.

Once we got home and started to help unpack all the goodies, I remember my mom saying to my dad, "Good Lord Eddie, can you believe the price of groceries these days?  Imagine that, $50 for just a car full."  And people wonder why, when every time I walk past the meat counter at the local supermarket, I tend to puke on the floor.  I realize that might be a disgusting habit but it's not because I don't love meat, it's because I have an incredible memory for visions from my youth.  And $50 for a boat load of food is one of my more cherished ones.  $64 for a single beef roast isn't.

So is it any wonder then that so many of us have this little quirk of wanting to know what our currency is doing relative not only to food items, but relative to all the other major currencies in the world?  Here in Canada we want our currency to be relatively stable and to remain relatively close to parity (or a bit lower if possible) with the American dollar.  So far so good.  It's an amazingly well managed pair and considering that those two currencies represent the largest single trading block between any two countries on the planet, it's critical that it remain well managed to the best extent possible.  Because god only knows, the last thing the Americans need is for their currency to suddenly tank and the Loonie to suddenly surge.  Imagine if we woke up one morning and realized that the Canadian dollar had quietly but steadily climbed until it became worth twice what the US dollar is.  The cost of Canadian crude to the USA would have doubled just that fast.  And the cost of all other Canadian exports would be so expensive we'd have a hard time selling them at all.  Nope... none of us want that... we want stability and relative parity if possible.

Other currencies and other pairings have relationships with each other that are just as important.  The Australian dollar and the Yuan have their own unique relationship.  The Australian dollar is also unique for another reason... its use in the currency carry trade casino.  It's for that reason that the Aussie:Yen pair is so very important as a measure of the appetite for risk.  Because when bankers can borrow Yen at next to zero interest and re-invest those Yen into relatively high paying Aussie dollars and bonds, they can just sit back and listen to the old cash register ring up profits day in and day out by investing money that they never even had in the first place.  They're using money they don't even have, and lots of it, to churn profits almost out of thin air.  It's a great gig when it's going their way.

But what happens when something goes wrong?  What happens when something that they weren't counting on suddenly almost scares the crap out of them, or at the very least causes their O-ring to tighten up just a little bit?  What happens when they get the sudden and undeniable urge to take a dump dump some of their holdings in order to reduce their exposure to risk?  The first thing they do, every damned time, is to unwind that risky currency trade they've got going with the Australian dollar.  They have to sell those Aussie dollars in a hurry, and at just about any cost, in order to pay back those Yen they borrowed... and in doing so, reduce their overall exposure to a very risky currency play.  It's a practice that will happen every time the biggest players get a scare.  And when they get a scare all of us had better pay attention.

About this time last year, the American dollar suddenly and inexplicably seemed to put in what appears to have been a meaningful bottom.  It remains to be seen whether or not the uptrend in the USD is going to continue but one would have to think that with 3 or 4 rounds of quantitative easing already in the books and another one being threatened, the dollar should have fallen right off the table by now.  Why hasn't it?  Because the evidence that deflationary forces are at work are becoming quite apparent if we look in the right places.  I've written several studies that provide overwhelming evidence that deflationary forces are indeed at work and have been since year 2000.  But that's not the topic of this conversation and I won't take that aspect any further today.

So since the American dollar put in what appears to be a meaningful bottom last summer, where does it stand relative to all the other key currencies in the world?  What have they been doing and where do they stand relative to each other?  In this simple chart we go back to the time of the low in the USD,  the beginning of May, 2011 and start from there.  On that day, every currency on the chart below begins with zero % fluctuation.  It's the starting point and from that day forward we map out the direction each currency has taken and the percentage move each has traversed since the first day on the chart.

Major Global Currencies Performance Style Since the USD Low of Last Summer.  Click here for a live and updating version.

It's pretty easy to see that late last month an inflection point seems to have been reached in several of the currencies.  The USD started to pull back.  Was that the top in the dollar?  Not likely... not likely by a long shot.  At least according to the evidence provided by several studies.that show deflationary forces bubbling and boiling just below the surface.  The $CRX story is the most amazing one I've come across to date.  So as could be expected, the other major currencies that do a lot of dealing with the American economy have gone the opposite direction that the USD has.  The Pound turned higher, the Swissie and the Euro did the same.  The Yen has remained relatively flat but the Australian dollar... what's up with the Australian dollar?  It's the only global player that is dropping along with the American dollar.  And why is that?  There can only be two reasons, a softening in the Chinese economy and/or currency carry unwind caused by credit contraction.  It's both.

Without presenting any analysis on the Aussie:Yen currency pair and without really presenting any analysis here at all, I just wanted to provide this 'overall' picture of what the major global currencies have been up to since the day the US dollar put in what could conceivably have been a multi-year low.  I'm not making that claim at this time because I don't know for sure and I haven't done any serious currency studies for quite some time.  Suffice it to say, one glance at the currencies in the chart above and two stand out like a sore thumb.  The US dollar and the Australian dollar.  Personally I expect every currency on the chart above to reverse direction except one... the Aussie.  I expect the US dollar and the Yen to remain above the zero line, the others to remain below it and the dollar to outperform the Yen slightly in the months and perhaps years ahead.

Thanks for reading this far, and just a polite heads up.. if you don't particularly care for shopping stories please don't bother reading any further.  You can save yourself a bit of time that way.

All the best and until next time... keep smilin'.

================  End of article.  Additional entries below. ====================

Who said animals don't have a sense of humor?  This guy obviously does.  For me the funniest part is in the first 1/50th of a second of the video when "the plan" is hatched in the kangaroo's head.  He's thinking: "Ok, I'm gonna get this little pecker.  Watch this guys!"

Chart and chART courtesy of Papa Boule

Rates About To Support Huge Equities Rally... What Next?

All of a sudden it dawned on me that I think we had better start to pay considerable attention to what's been happening recently in the bond markets.  Ever since November of last year, the entire rally in equities was pretty much in complete defiance of falling rates (stronger bond market).  Normally when rates are falling, that means bonds are rising so equities should be falling with rates.  But since November they haven't.  The equities markets have been supported by Goldman Sacks, JPM, BAC and the rest of that satanic den of vipers until the day the bond markets woke up.  It looks like that day has quietly arrived.  Normally it's the bond markets that dictate where equities are going, not the other way around.  But not this time.  In any case, it is what it is and now...

$TNX Weekly - Click here for a live and updating version

... all of a sudden rates are exploding higher with all indications suggesting they have a lot further to rise.  Rising rates would be in total support of rising equities prices.  Unfreakingbelievable, but it appears that's what might happen.  Rates certainly appear to be on the verge of exploding higher, meaning a ton of money will be fleeing the bond markets.  This time may indeed be very different though, insofar as that the "reasons" for rising rates today are unlike any reasons in prior history and they're not good reasons.  They're very, very bad reasons.  So undoubtedly a lot of that cash fleeing the bond markets will be required to retire leveraged debt that was created just to buy those bonds in the first place.  It'll just vanish off the face of the earth.  But without doubt, an absolute shitload trainload of it would still find its way into equities.  God damn!  But hey, if that means bears have to swallow their pride and make some money on the long side for a change, buying TNA tomorrow might be the smartest thing we've done in the past year.


I can just hear Dimon now:

"What can I say kids?  That's just the way it works when we own run the whole fuckin' world!"

"And by the way, thanks for lunch." [image courtesy of ZH]

EDIT: Just for the record... the day after this article was published, TNA did close the next session higher by 3.26% and rose by a further 2.25% the day after that, to close the week up 6.83%.  On Aug. 21, four sessions after this piece was written, TNA peaked 9.3% higher.

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Hindenburg Omen - Finally Back Online

Today would be a great day to bring everyone up to speed on what's been happening on the Hindenburg Omen front lately.  Obviously you can see that this blog had gone very quiet on that topic and the main reason for that is that as of May 3rd the Hindenburg Omen has been out of commission due to a rule violation.  It's a rule which for 27 years has been absolutely cast in stone... an absolute MUST in accordance with the rules set out by the inventor of the HO, Mr. Jim Meikka.

IMPORTANT UPDATE AT BOTTOM:

I realize that there have been several stories lately stating that the HO "has gone off".  But unless there has been a rule change regarding the requirement that the 50 day MA on the NYSE "must be rising", there is simply no way that any recent report of an HO signal can be accurate.  To the best of my knowledge, the last time the HO issued a signal was in August of 2010.  I say this with all due respect to those who have reported an HO signal recently because it is possible that Mr. Meikka changed a rule that has been in place since day one of the HO's very existence, but I didn't get the memo.  That's possible... and if that's the case then I am behind the curve.  Until today I had made every effort to ensure that I was "ahead of the curve" regarding the HO rules.  Otherwise I'd just be your everyday friendly reporter with inaccurate data.  And if that was the case I wouldn't even bother writing 10 keystrokes about it.

NYSE Daily - A chart specifically designed to monitor the moving average.  Click here for a live and updating version.

I do know with certainty though, that there are some sites who are still using the rules of 10 years ago, totally unaware of two very important changes that Mr. Meikka made a couple of years back to adjust for the relatively higher number of ETFs and bond funds.  Those changes absolutely 'did' prevent a couple of signals that I know of.  In any case, in order to attempt to clarify the possibility that I have missed an important adjustment by Mr. Meikka, I have sent an email off to Mr. Arthur Hill after reading his report at StockCharts, in an attempt to find out if he can enlighten me about that change.  [I was only informed of Mr. Hill's article yesterday.]  I'd get in contact with Mr. Meikka himself if I could but to date I haven't discovered how to contact him.  I seriously doubt he has changed this rule though since it's so germane to the entire workings of the HO.  But I'm just as fallible as the next guy... I might be wrong.  Mr. Hill is a very credible analyst so to be honest I'm not willing to just disregard his findings.  But until I get some sort of verification that Mr. Meikka has changed this rule... I have to surmise that there has been no HO signal since August of 2010.  As I said though, I stand to be corrected if necessary.

In any event, as of the close yesterday, that's all a moot point now since the 50 day moving average on the NYA (NYSE) has turned higher.  So as of this morning the Hindenburg Omen is back online and able issue an alert.  And judging by the price action of 10 weeks ago, it isn't likely the HO will be switched off in the immediate future.  It makes perfectly good sense too, that the HO "should be" switching on and off as it gets near to issuing a signal.  After all, what the HO issues warning about is an imminent decline.  One would think that would happen near a market top, right?  And what else happens at a market top?  The 50 day moving average rolls over!  So obviously there's a fairly narrow window within which the HO can raise the flag.  In that regard, the HO is very much like a television that's on its final legs.  It first begins to flicker, then it issues an important alert, then it breaks down altogether.  Once the HO has issued its signal accurately and the market rolls lower, and it the 50 day MA rolls over with it as it should, the HO is immediately rendered "dead".  But it has done its job.

But regarding those who don't really care about the official rules, as I described to my good friend Pebblewriter in a recent comment: "It's similar to watching a TV that isn't plugged in. If it's not plugged in we're not gonna get a signal. But somehow some of the analysts out there are able to sit back and watch the HO that's not plugged in and by some form of magic get some kind of entertaining "Urgent News Alert" out of it. That's quite the talent isn't it?"  When I made that statement, I was envisioning one site in particular which is no longer even in existence where the author was just chomping at the bit to "be the first" to make the announcement.  It always amuses me to see who's going to be first and then who else takes the bait and jumps on that bandwagon.  Even ZH has reported HO signals when the TV wasn't even plugged in.  So my entire purpose in running a blog at Seeking Alpha that has been dedicated solely to the HO topic for nearly three years now was to provide "accurate" signals for my friends over there.  And of course... I also brought the topic over here when I started this blog a half year ago.

UPDATE: Only moments after having published this article, the mystery has been solved.  I just got of the phone with Tom McClellan and he informs me that there has been no rule change and that my understanding of the rules is correct.  Unfortunately (or fortunately), Mr. McClellan confirms that my suspicion that Mr. Hill 'misinterpreted' the rules is indeed correct.  In no way do I mean to disparage Mr. Hill either.  He's a stud of an analyst for whom I have a great deal of respect.  It's just one of those innocent things.

So stay tuned... yesterday the number of new 52 week highs and 52 week lows were right in the ballpark for an HO signal.  And now that it's "back online" any signal in the coming days "will be" accurate.  Let's just sit back and see what happens now.


Meanwhile, how about a little Joe Cocker?  Live in Berlin.

...

NYSI Working Magnificently - A Major Sell Signal

Good evening my friends.  As you may have noticed, I haven't been in much of a mood to write as of late.  I'll cut right to the chase... sometimes people can piss me I find people to be so aggravating that I get to the point when I finally just say "to hell with it, I'll just keep on doing what I do in my own office every day and just use it myself".  And for the most part that's what I've been doing for the past couple of mumfs.  [Don't ask me why I like to spell that word that way because I don't know.  It makes me chuckle I guess.]

BUT... tonight I read a comment on our friend Pretzel's site that inspired me to drop off a comment there.  The comment that jolted me out of the 'I don't feel like writing' coma was written by a great participant named 'aweedram' wherein he offered a chart that looked "very doable" to me.  I certainly appreciated his effort and his vision, BUT I also have good reason to believe that the odds of it actually developing are very, very slim.  So I left a comment on Pretzel's forum (not on his fabulous EW analysis site) in response to 'aweedram' and basically it went like this:

============

BUT... I.also have to defer to several studies I have ongoing at all times. God, there are so many of them but the ones pertaining to market internals are now speaking volumes. Here's a daily chart of the Summation Index for the NYSE:

NYSI Daily - Click here for a live and updating version

What I've been watching is the negative divergence seen at the top of the recent action (red and yellow arrows). First of all, the histogram was indicating that a reversal in NYSI was imminent. What wasn't clear was whether or not the market would roll lower with it. If the market does not roll lower with NYSI, as seen in Feb. of this year, then a different form of neg. divergence is setting up between NYSI and the market itself (NYSE). In a case such as that, we know the bulls are still in charge and we'd have to wait for some form of a second rollover in NYSI that coincides with the market finally turning south. We saw that in March of this year and all that really happened at that time was that NYSI simply consolidated until the NYSE caught up with it and finally decided to tank. At that time they both keeled over and puked at the same time. Kind like me and my old drinking buddies used to do.

However, as I noted on this chart back on June 12th, if the market rolls over FIRST or COINCIDENT WITH a NYSI that has turned lower... watch out because it's the real deal. The chart is actually from this article which I had published regarding the coming bounce.  And man... did the market ever bounce.  Five ugly times to be exact.  But as demonstrated in the original publication of the chart... we have a REAL DEAL goin' on here now. And all indications are that we probably can't even expect much of a bounce until August 6th or 10th, thereabouts. Not a big bounce at least. Some readers might recall my explanation about 'why' momentum indicators do not produce a divergence at the top of a wave 2 or a wave C. Although not exactly the same, this is very similar to one of those cases. In that previous explanation I was referring to an RSI or stochastics indicator. But the 'cause' is the same in this case... tthere will be no more upward waves to cause a neg. divergence between NYSI and the NYSE.  Please don't misunderstand... that doesn't mean there won't be a bounce.  It just means that if there is a bounce, it will be a dud in that the market will not reach new highs.  But to reiterate, even so... we shouldn't see any bounce of any significance until somewhere around Aug. 8th give or take a day or three.

When I look at the futures tonight, and at all the pos. divergences on every time frame, I'm certain a bounce is coming. But according to the much more significant and reliable signals coming out of the market internals data, it's not likely going to be much of a bounce... just another great shorting opportunity. But I've learned my lessons by now... the Orcs of New York are so powerful that God only knows what they can do. My confidence has been shaken to its very core by those bastards but I'm going with what I'm seeing... this market is gonna tank big time.

I hope everyone out there is doing real well and that you're able to capitalize on the markets in the weeks ahead.  Personally I don't think there's much chance it's going to be anywhere near as choppy as it has been since early June.  Think... "more linear".

Until next time... whenever that is... stay well!
AR

Tranquility Base

NYMO - Shooting Off Its Own July 4th Fireworks

Well it's the eve of another glorious birthday for the USA and we'd like to take this opportunity to wish our American brethren our most sincere best wishes for another happy and prosperous year.  In fact we hope it's even better than the last one.  God knows, it had better be.  So over the past two weeks, perhaps in celebration of another upcoming glorious chapter in the story of the United States of America, the markets have partied like there's no tomorrow (perhaps not the best choice of words) and have run up so far, so fast that suddenly we find ourselves looking at a divergence situation in the McClellan Oscillator not seen since this very weekend of last year.  Also of note is the very intriguing fact that this same time period (between the last day of June and July 4th) has marked a very important turning point in the markets for the past 3 years running (more on that below).  This short one week period produced a low in 2009, another low in 2010 and a peak in 2011.  If this same week in 2012 is going to also mark a crucial turning point in the markets, it's pretty difficult to imagine it as being a low.

In the daily chart of NYMO below we can see how this divergence has developed:

NYMO Daily - Click here for a live and updating version

Before we begin, please note that of all the market internals indicators, some are relatively quick and 'reactive' to daily market conditions and some lag the markets by a few more days.  NYMO is one of those quicker ones... it's one of the first to issue warnings.  On the other hand, the Summation Index (a derivative of NYMO) is one of the laggards, typically reacting 3 or 4 days after a major turning point.  Not always, but usually.  Ok, so now that we're clear that today's discussion is about one of the indicators that is fairly sensitive, we begin...

Of prime interest here is the fact that at the end of June, NYMO registered the highest monthly reading of all time.  Interestingly, the last time it was up in the nosebleed section like this was in May of 2004, a full year after the market low of March 2003.  It just stands to reason that after stocks have gone through a crash such as that which occurred between Aug. 2000 and 2003, perhaps as many as 90% of all stocks had been declining.  So it's natural that once a recovery takes hold, a whole lot of those 90% of stocks that had been declining suddenly begin to rise in unison.  And of course that quickly shoots the McClellan Oscillator through the roof.  The exact same effect occurs with the much esteemed Zwieg breadth thrust indicator, but from past experience I can assure you, 95% of investors I've run into simply cannot understand how a breadth thrust can happen on a mere recovery off a severe low (which can turn out 'not' to be 'the' low).  They laugh at me.  I smile politely as I quietly relieve them of their wallet.  But I digress.

So we now have to ask the questions: "Are we seeing the markets just at the verge of cracking up and heading toward 1100?  Or are we seeing the markets on the verge of a new bull run such as that magnificent rally that began in March 2003 and lasted four and a half years?"  To tell you the truth, as far as the McClellan Oscillator is concerned, it really could be either.

So we zoom out a bit and take a look at the weekly chart of NYMO below:

NYMO Weekly - Click here for a live and updating version, complete with a few more indicators

At the end of June, the McClellan Oscillator closed the month at the highest reading of all time (on a monthly basis).  On a weekly basis, and even as of this evening, NYMO is currently sitting at the second highest reading of all time.  Looking at both charts above, in consideration of where the McClellan Oscillator currently resides, the only thing we know with 100% certainty is that the market is going to be headed south at any moment.  Perhaps it will begin with the market open on Thursday.  Perhaps the rally can even last as long as to finish out the week a bit higher.  But it's going to pull back.  If you're long... get out because the potential for downside risk dwarfs any reward you could possibly gain over the coming weeks.  You got your 8% in six days... now take it off the table.  This is a conclusion that's not even open for debate.  C'mon investors, the markets have just put in a magnificent 8% rally in 6 days, closing on the one week window that has marked a major turning point in 1998, 1999, 2003, 2006, 2007, 2009, 2010 and 2011.  True enough, not all of them were tops.  But if a turn is going to happen during this same week of this year, I can tell you this year it ain't going to be a low.  The question that is still open for debate is how far that pullback is going to go.  That part I don't pretend to know.  All I'm very comfortable with is that the market internals are sending a signal that basically says "enough already" and that we'd best be prepared for the inevitable... and that being "no bulls, you're not going to get another 8% over the next 6 days."

Every once in a while we hit the end of the road

And finally, the divergence that has developed is not a bearish divergence but a negative divergence.  They are not the same thing.  The bearish divergence, one in which the index makes a new high but it's indicators do not, does not offer measurable targets.  The one we're looking at today is a negative divergence, one which 'does' offer a measured move possibility.  In these cases, the indicators make a new high but the index does not.  With the negative divergence set-up that we're faced with currently, we're looking at a measured move to 6234 on the NYSE (NYA) and 1118 on the S&P 500.  I wish I could offer a money back guarantee that these targets are going to be hit.  But considering that we're now living in a matrix where the central banks of the world just keep pulling one green rabbit after the other out of their greasy asses, who in heck knows for sure whether or not these divergences and the message they deliver will be obeyed this time around?  If there were no such thing as central bankers I'd offer that money back guarantee.  Mind you, if there were no such thing as central bankers the Dow never would have gotten over 1000 in the first place.  So stay tuned... the potential for a big decline does indeed exist despite the stink of euphoria permeating the planet's otherwise breathable atmosphere.

Wishing all of you nothing but success going forward... and a beautiful and happy summer.

Until next time....

END OF ORIGINAL POST

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UPDATE: July 4th, 2012

Papa_Boule has made reference to a couple of great 'broad measures', the GDOW and VEU (the ETF that includes everything BUT the US indexes).  In the interest of providing a 'visual' for our discussion, I've added a daily version of GDOW below:

GDOW Daily - Click here for a live and updating version