Monday, September 20, 2010

Alongside, I've reproduced a chart that shows crucial short-term resistance at 20.895, a midpoint Hidden Pivot. This number has already been validated by the stall a tick below it, and so we can infer that any significant progress above the obstacle -- progress of as little as three or four ticks -- would be telegraphing a likely move to at least 21.170, the midpoint's 'D' sibling.

As they stairstep toward an aging target at 1290.90, the futures evidently are not about to be rushed. I've already suggested making position adjustments if and when the Hidden Pivot is reached -- and even some scalping from the short side, since a precise pullback looks likely. However, as noted earlier, if the rally pops through 1290.90 by more than $1.00 within an hour or so of first touching it, a finishing stroke to at least $1300 would become an odds-on bet.  At that point, our next price objective would be 1340.00.  Night owls please note that Sunday night trading opened with a short-squeeze that failed to clear an obvious external peak at  1281.50 on the lesser charts. This suggests that bulls could remain in a holding pattern till morning. _______ UPDATE (1:32 a.m. EDT):  Ahh, now that's more like it!. The futures have punched through the midpoint resistance, clearing a path to 1290.90.

Friday's clumsily engineered pump-and-dump got past two of the prior peaks I'd flagged, but not the critical third, a look-to-the-lefter at 1135.75. This means that even if the futures should get second wind and push above 1135.75 within the next couple days, the rally will still have failed the strength test, since the kind of buying with the moxie to run till November would have had no trouble getting past 1135.75 on the first try.  The failure was by just 2.25 points, but when we are talking about impulse legs, the miss might as well have been by a mile.  Please note that the peak was initially given as 1133.50 but that adjustment will have no effect on my analysis.

For all of Japan's aggressiveness in trying to push the yen lower, the dollar has not exactly sprung to life.  I continue to expect it to make significantly lower lows, but we should remain open to a turn nonetheless, even if it's difficult to imagine what might bring it about.  For now, it would take a print at 82.30 by day's end to convince me that such a turn had occurred, and anything less should be regarded as mere noise.

Leave it to the Wall Street Journal to wax enthusiastic over a perpetual-motion machine for the U.S. economy that in reality can no more exist than a unicorn. Here’s the headline, proffered by the Journal under the dubious title “Economic insight and analysis” and written by one Alex Frangos:  “Don’t Worry About China – Japan Will Finance U.S. Debt”.  Frangos notes that Japan has stepped up its buying of U.S. Treasurys, as indeed it has, in order to slow the rise of its own currency.  This is a crucial task for Japan Inc., since even a relatively small increase in the value of the yen can wipe out a competitive advantage that its exporters have worked hard for decades to achieve.  The damage has already occurred to a significant extent, since the yen has rallied 15 percent since May. However, Japan’s most recent interventions have been so aggressive as to suggest the goal is to scare yen buyers out of the market for a long while.  We have our doubts this tactic can succeed, especially since China has become one of the yen’s biggest buyers, but for the time being it has driven the yen sharply lower. The crazy idea here is not merely that stepped-up Japanese purchases of U.S. Treasury paper will somehow take up the slack now that China has begun to aggressively diversify its $2.5 trillion reserves away from the dollar. What Frangos is suggesting is that China’s move out of dollars will stir up strong new demand for greenbacks among China’s major trading partners, all of whom will supposedly be more eager than ever to keep their currencies cheap relative to the dollar. Under this scenario, countries such as South Korea, for one, will be so vigilant about preventing the Chinese from gaining a further currency edge that