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From the monthly archives:
October 2010
From our friend Jonathan Auerbach: Please click on the thumbnail panel to imbibe some remarkable emerging market rate expectations by our friend Mike Churchill of Churchill Research. Mike’s thesis is that the rate hikes in China Tuesday were destined to happen, hardly an anomaly in a ’strong’ global economy, and he expects many more such hikes across the emerging world over the next year. These increases should result in highly divergent historical spreads between US Fed Funds and all other global rates, save the ECB and Japan, and continue to provoke increasing liquidity to flow into EM fixed income in search of higher returns and similarly into EM equity markets. Thematic implications (unintended consequences?) we should all consider are that EM Central Banks may indeed respond with capital controls as Brazil did recently; if indeed the hikes are a sign of economic strength at what point is the US dragged along; and how will gold and its equilibria to all commodities react given the knee-jerk performance Tuesday.
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We are long the November 300-310-320 butterfly spread for a 0.20 debit. Earlier, I’d raised the possibility of widening our theoretical profit zone by butterflying the 320 strike, but the stock has not cooperated with the dip we’d need to leg into the position at great prices. In fact, it’s in a parabolic rally right now that seems to pause only when the stock’s canny handlers will it.
The 180-minute chart filters out enough noise to show the potential importance of a midpoint resistance at 24.275. If the futures are able to close above it they’d become an even-odds bet to reach its ‘D’ sibling straightaway. In the meantime, I’ll suggest using a midpoint support at 23.505 to go bottom-fishing if the futures get sacked today. The relevant coordinates, from the 180-minute chart, are: A=24.405 (8 a .m. on October 19); B=-23.270 (5 p.m. on October 19). Please note that an alternative ‘p’ midpoint appears at 23.455 if you use an entirely plausible 24.505 for ‘A’
Persistent buying pushed the futures $21 above Tuesday’s low, lifting Gold out of the high-danger zone while generating a minor bullish impulse leg on the 15-minute chart. This is all mildly encouraging, but we’ll need to see a print today above the 1158.90 look-to-the-left peak shown in the chart before we have reason to relax. The peak was described here yesterday as “soft” on the hourly chart, but on the 15-minute, it’s hard-as-nails. _____ UPDATE (1:07 p.m. EDT): The futures are getting sacked today; however, at this moment they are bouncing from a midpoint support at 1320.60. If it should fail, that would signal more weakness down to exactly 1291.60, a target that I posted earlier in the chat room.
During yesterday’s real-time tutorial session, I pledged, perhaps rashly, to hack off my right arm if the futures failed to achieve a Hidden Pivot target at 1186.00 (and after that, 1192.50). So, should I now be nervous just because DaSleazeballs have opened the sluice gates, causing the futures to fall Wednesday night from their intraday high of 1180.00? Probably, yes. But long experience tells me buyers will come through for me unless there is some sort of news — “Trumpets Heard from On High” — to cause shorts to relax for an hour or two when stocks open Thursday morning. In any event, night owls can try bottom-fishing at 1172.25, stop 1171.50. The bid is a tick above a ‘d’ target than can be found on the 15-minute chart, where a=1179.00 at 3:30 p.m. Eastern. _______ UPDATE (9:30 p.m. EDT): We missed a beauty by a single tick when the futures popped from 1172.50. Since we don’t ‘do’ sloppy seconds, you should cancel the trade. ______ FURTHER UPDATE (10:33 a.m. EDT): The futures are having a very Hidden Pivot day, having bottoming overnight at 1172.00 and then rallying this morning to a so-far high at 1186.25. We missed the trade, but at least I’ve still got my right arm. Bulls evidently liked the news concerning weak retail sales, since, won’t that mean more (yippeeeee!) “stimulus”?
Once again, we see that it pays not to get too excited about some stupid rally in the dollar, especially when the supposed cause of the rally– a rise in the yuan lending rate?? – flouts common sense. With DXY’s relapse yesterday, this vehicle all but wiped out any chance it had of demonstrating that technical forces are about to turn the doillar sharply higher. As I had noted here earlier, the rally needed to surpass two prior peaks on the daily chart without taking a breather. It did manage to get past one of them on Tuesday, but the would-be sprint toward the second that was to have occurred yesterday was exhausted before DXY had even left the starting gate.
What on earth would cause anyone to think the dollar is going to rally merely because a rally seems ”overdue”? Even as I write these words, a story on the evening news is describing the deep spending cuts Great Britain is enacting to bring expenditures more realistically in line with tax revenues in these hard times. Similar measures are certain to be voted across Europe — and yet, with the U.S. pondering QEII and yet another Keynesian blowout, are we to expect the dollar to somehow gain ground against the euro and other currencies managed by a growing number of nations that have begun to question the value (in every sense of the word) of ginned-up money.
From a purely technical standpoint, the Dollar Index still has a chance to take on peak #2 without having paused, since yesterday’s plunge did not quite create a discrete, point ‘C’ low on the daily chart (see inset). Such an outcome seems doubtful, however, notwithstanding the violence of the gratuitous moves both up and down that could conceivably play out for yet another day or two. Barring an outbreak of dollar delirium, I’ll hold to my earlier forecast of a test of last December’s 74.17 low and, eventually, a more crucial test of support at currency-dom’s Maginot Line: 70.
(Because it drew such a heavy response in the forum, the commentary below was originally scheduled to run on Wednesday for a second consecutive day. However, I went with a market-related commentary instead because of the large moves in bullion and the broad averages that had occurred the day before. RA)
Here in Colorado, it’s especially difficult to escape the vitriol and mudslinging of Campaign 2010. The closely watched Senatorial race between Democrat Michael Bennett and Republican Ken Buck has attracted a torrent of out-of-state money, and it sometimes seems as though all of it, a reported $750,000 a day, is being used to finance the attack ads that have come to dominate the local airwaves. Elsewhere in the country, it’s the same unpretty story — no doubt in part because Democratic candidates would rather not talk about, much less defend, President Obama’s heavy-handed initiatives. Thus, in the last few days alone do we find one Republican smeared with the charge of rape, and another, Rand Paul, accused of having tied up a woman 30 years ago and commanding her to worship a false idol. If you’ve been following the news, you know we didn’t make this up. Even the President got into the suppurating spirit of things recently, accusing the U.S. Chamber of Commerce of taking foreign money to back right-leaning candidates. But even the » Read the full article
Stocks Primed to Plunge, Says Our Man Chuck
by Charles Cohen on October 22, 2010 3:04 am GMT · 31 comments
(Our friend Chuck Cohen, a New York-based financial consultant and a raging bull on bullion, recently turned cautious on precious metals – but extremely cautious on stocks, which he says are setting up for a crash that could be worse than last May’s. The report below was prepared by him more than a week ago, but Chuck notes that sentiment extremes in gold and silver have corrected nicely since. Although he can’t bring himself to turn as bearish on bullion as he is on stocks, Chuck says gold is nonetheless likely to violate round-number support – i.e., $1300 – before the shakeout subsides. If you’d like a free copy of his latest report, click here . RA)
Over the past couple of weeks, as the Dow has climbed above 11,000, gold past $1,300 and silver to $25, the sentiment indicators have also leaped sharply. The extremity of these indicators, similar to what we saw at the April top, should be taken as a clear warning of trouble ahead. Because of this, I am recommending strong caution toward all of these markets. This shouldn’t be a major correction, especially in the precious metals, but it should serve to quell the current, giddy atmosphere — and » Read the full article