Friday, August 3, 2012

September T-Bond futures look like they're revving for a run at all time highs recorded a little more than a week ago.  Check out today's tout and chart if you think you see a bearish head-and-shoulders pattern in the making, since there is strong evidence to the contrary if you apply Hidden Pivot Analysis.

The futures did yesterday what we should have expected them to do if they are bound for new all-time highs.  The 149^16 low occurred just 5 ticks beneath the midpoint support of the pattern shown, giving way to a spirited rebound that, while not yet impulsive on the 480-minute chart, need only push above 152^14 in the days ahead to generate a bullish impulse leg on the hourly.  Some may claim to see a bearish head-and-shoulders pattern in gestation, but Hidden Pivot Analysis suggests otherwise -- as you can see for yourself in the accompanying chart.

We'll raise the bar a tad lest we be seduced into believing that some little rally portends a far bigger one. Let us stipulate that the futures settle for two consecutive days above the 1619.60 midpoint resistance of the pattern shown before we give this nearly ten-week-old dirge the further benefit of the doubt.   Assuming yesterday's 1586.30 low holds as point C, the magic number for today, as noted above, would be 1619.60.  Above it, there would be no room for even a shadow of a bullish doubt if buyers can push this brick above the 1678.60 peak recorded on  May 1.

I mentioned the prospect of a 40-point rally in today's commentary, and here it is in graphical terms. The C-D leg has been slow in its approach, to put it mildly, but the pattern itself is hardly farfetched. More immediately, the futures will need to resolve the bearish impulsiveness of yesterday's plunge. If the 1404 rally target shown is to be achieved, the downtrending abc shown in purple will reverse from its p midpoint or higher.  Camouflageurs can try bottom-fishing there if the pattern unfolds more or less as shown.  You can learn how to do this stuff yourself — and more easily than you might imagine.  Click here for a free trial subscription.

Alas, the devil is in the details for Europe’s latest attempt at financial alchemy.  Much to the investment world’s apparent dismay yesterday, it turned out that the ECB’s Draghi had nothing very specific in mind when he pledged last week to defend Europe’s monetary union by any means necessary.  In theory, and most immediately, such a rescue would entail using printing-press money to mop up Spain’s leprous bonds, lest rates push above 7%. Seven percent is the generally accepted danger threshold for sovereign borrowers, but we’d lower the red zone to around 2% ourselves. Our argument is that even a “mere” 2% rate imposes an asphyxiating burden in real terms, given the combination of deflation and fiscal austerity that has put Europe in a choke hold. Regardless, we won’t quibble over a spread of five measly percentage points if Europe’s bankers have indeed convinced themselves, as they seem to have, that servicing loans at a rate above zero is do-able in a negative-growth environment that could linger for years. No doubt Mr. Draghi feels a twinge of Helicopter envy whenever he is called on to make heroic promises.  His colleague Mr. Bernanke can say and do things that would get Draghi hauled in front of a tribunal – if not in his native Italy, which has always thrived on gray markets, then in Germany, where bankers continue to vex the rest of Europe with their prissy insistence that i’s be dotted and t’s crossed.  With Germany riding herd on any tactic that Draghi might attempt, his task of fixing Europe is akin to Bernanke trying to bail out California with Ron Paul holding a veto.  And while Bernanke could be counted on to evade even the most deadly surface-to-air inbounds, Draghi lacks the experience and political cover to stay airborne.