Weekend Update | www.thepracticalinvestor.com
February 28, 2014
— VIX closed below its cluster of weekly Model supports after challenging weekly mid-Cycle resistance at 15.63. VIX did not make new lows this week, a non-confirmation of the SPX rally attempts.
SPX is repelled by Cycle Top resistance.
SPX rallied to a new closing high, but reversed short of its weekly Cycle Top resistance at 1877.75. Orthodox Broadening Tops are often called 5-point reversal patterns. The SPX currently has 7 points within its Megaphone pattern, a rare anamoly. The upper trendline of the Bearish Wedge acted as a suport this week in a second throw-over pattern. I had mentioned that, “A new record high will not negate the effects of a Bearish Wedge or the Broadening Top. It only postpones it. Many bearish technicians are now bullish, not recognizing the bearish reversal pattern.”
(ZeroHedge) With the Ukraine now openly appealing to the world to halt what in its own words is a Russian invasion, it only made sense that after the bigger than expected downward revision to Q4 GDP, and the miss in Pending Home Sales, that the S&P would close at a new all-time high. Oh, there was that surge in the Chicago PMI which confirmed that the February weakness across all other data was not due to the weather, and which is all that the market decided to focus on.
NDX probes at the Broadening Wedge trendline.
NDX probed its Broadening Top trendline for a third week, closing with a gain for the week. This type of rally is a bull trap, keeping investors reassured that all is well. A late-day reversal occurred on Friday that portends some follow-through on Monday.
(Bloomberg) U.S. retailers last quarter suffered their darkest days since the recession.
With results in from 62 of 122 retail chains, the industry has posted its first profit quarterly drop since the economic contraction that ended in 2009, according to Retail Metrics Inc. Revenue also rose at the lowest rate since that year, the research firm found.
The results paint a grim picture of an industry hit hard by the sluggish job recovery and slow wage growth, which have turned U.S. consumers into a nation of penny pinchers.
The Euro’s head fake stretches another week.
The Euro bounced from weekly Short-term support at 136.58, but did not exceed its prior high. The inability to make a new high indicates this may be a bearish head fake.
(ZeroHedge) Here we go:
UKRAINE ACTING PRESIDENT TURCHYNOV STARTS BRIEFING
UKRAINE LEADER SAYS RUSSIA STARTS AGGRESSION AGAINST COUNTRY
UKRAINE SAYS RUSSIA INVADED UKRAINE UNDER GUISE OF EXERCISE
UKRAINE LEADER SAYS RUSSIA TRYING TO PROVOKE CONFLICT
UKRAINE LEADER SAYS RUSSIA SEEKING TO ANNEX CRIMEA
UKRAINE’S TURCHYNOV SAYS WILL DEFEND ITS INDEPENDENCE
UKRAINE ACTING PRESIDENT ACCUSES RUSSIA OF WORKING ON A SCENARIO LIKE BEFORE WAR WITH GEORGIA
The Yen is consolidating in a narrow range.
The Yen rose above weekly Intermediate-term resistance at 97.48, but staying in a shallow range. Further decline is anticipated by the Cycles Model. The next break of the Head & Shoulders neckline may bring the Yen beneath its 2008 lows.
(Reuters) – Asian stocks edged up in late trading after a volatile session on Friday, as investors weighed unrest in Ukraine against Federal Reserve Chairwoman Janet Yellen expressing confidence in the strength of the U.S. economy.
The fear factor helped the yen rise against the dollar and euro on its traditional safe-haven appeal as tensions mounted in Ukraine, even after Yellen’s testimony to a Senate committee helped the S&P 500 close at a record high.
U.S. Dollar makes a final Cycle low.
The dollar low on February 18 appeared within the window for a Master Cycle low, but it made a deeper low on Friday, February 28. This appears to be the final low of this Master Cycle. A reversal above the trendline reinstates the bullish view on the Dollar. The dollar shorts may have to deal with the reversal in the coming weeks.
(Reuters) – The dollar fell to a two-month low against the euro on Friday, posting its worst monthly performance since April after data showed steady euro zone inflation and a downward revision to fourth-quarter U.S. economic growth.
The European Union’s statistics office Eurostat estimated that consumer prices in the 18 countries sharing the euro rose 0.8 percent year on year this month, a sign of stability that cooled expectations the European Central Bank might ease monetary policy as early as next week.
Treasuries challenge the declining Trading Channel.
Treasuries bounced from the (red) Broadening Wedge trendline and weekly Intermediate-term support at 131.27, challenging Long-term resistance and the declining Trading Channel at 133.27. The Cycles Model suggesting a Cycle turn at the end of February inverted, tracing out a high instead of a low. However, Friday is an important turn date and we may see a surprise collapse in bonds over the next month.
(ZeroHedge) While it is unclear why it happened, in the most recent week of Fed data, February 19, Primary Dealer holdings of Coupon securities tumbled by $21 billion, to just $2.3 billion. As the chart below show this is curious because the last time PD holdings of coupon securities was this low was in September of 2011, suggesting that in the middle of the month dealers were dumping coupon paper aggressively even though this did not impact the prevailing price of the various maturity buckets, considering the bond complex continues to grind higher in 2014 despite panicked warnings by the punditry that all Treasury holdings must be sold.
Gold continues above Long-term resistance.
Gold stayed above Long-Term resistance at 1306.91 but made little headway after making a 64.8% retracement of the prior decline on Tuesday. The Cycles Model calls for a month-long decline that may break through the Lip of a Cup with Handle formation. The potential consequences appear to be severe.
(ZeroHedge) While the FT promptly retracted an article on precisely the topic of gold manipulation from earlier this week (recorded for posterity here), Bloomberg appears to not have had the same “editorial” concerns and pressures, and today released an article once again slamming the final conspiracy theory that while every other asset class is manipulated, gold is in a pristine class of its own, untouched by close-banging, price fixing traders or central bankers, and reports that “the London gold fix, the benchmark used by miners, jewelers and central banks to value the metal, may have been manipulated for a decade by the banks setting it, researchers say.”
Crude completes a 58% retracement.
Crude made a higher peak on Monday with a total retracement of 58% thus far. It now may be ready for a swift decline. There is a Head & Shoulders formation at the base of this rally, which, if pierced, may lead to a much deeper decline.
(Reuters) – U.S. oil on Friday had its eighth straight week of gains on market talk of fewer oil rail shipments from the booming Bakken shale in North Dakota.
Crude oil loadings at a dozen major North Dakota rail terminals fell by more than 200,000 barrels on average in the past two days to 345,000 barrels, data from industry intelligence provider Genscape showed on Friday.
China stocks decline beneath supports.
The unusually large bounce from the January 20 low gave the Shanghai Index a new chart pattern to track. This week’s decline beneath all Model supports suggests that China stocks are on their way to that goal. The secular decline may now resume with the next significant low in mid-March. There is no support beneath its Cycle Bottom at 1946.41.
(Bloomberg) On any list of banking accidents waiting to happen, China is assured a place at the very top. But could a crash there take the entire global economy down with it?
Absolutely, says Charlene Chu, who until recently was Fitch’s headline-generating analyst in Beijing. Chu has fearlessly trod into an area that China is trying desperately to keep off limits: its vast shadow-banking system. Now that she’s working for a private firm that doesn’t have to rely to governments for revenue, as do rating companies, Chu is free to speak completely openly. And is she ever.
“The banking sector has extended $14 trillion to $15 trillion in the span of five years,” Chu, who is now with Autonomous Research, told the Telegraph. “There’s no way that we are not going to have massive problems in China.” What’s more, she added, China “could trigger global meltdown.”
The India Nifty bounced above resistance levels.
The CNX Nifty continued its retracement through Intermediate-term resistance at 6185.82. The retracement now appears complete at 72.4%. The Cycles Model calls for a decline through mid-May. Could there be some economic disappointments ahead?
(OfTwoMindsBlog) The conventional view of China and India sports not one but two pair of rose-colored glasses: Chindia (even the portmanteau word is chirpy) is the world’s engine of growth, and this rapid economic growth is chipping away at structural political and social problems.
Nice, especially from a distance. But on the ground, China and India (not Chindia–there is no such entity) are both powder kegs awaiting a spark for the same reason: systemic corruption in every nook and cranny of both nations. The conventional rose-colored view is that corruption will inevitably decline with modernization and economic growth.
This is simply wrong on multiple levels: as the opportunities for crony/neofeudal skimming increase, so does corruption. As the scale of the economy increases, so does the scale of corruption.
The Banking Index remains beneath its trendline.
BKX attempted a challenge of weekly Short-term resistance and trading channel trendline at 68.89, closing on it for a third week. The uptrend line is broken and, more importantly, stands as a resistance to any further rally. The Cycles Model suggests a new low may be seen in the next two weeks. Might there be a flash crash?
(ZeroHedge) Raise your hand if you are surprised that, as has emerged, virtually every major bank was manipulating currencies (and everything else)whether as part of the “Bandits’ Club”, the “Cartel” or some other – until recently- secret message room.
That’s what we thought.
Now raise your hand if you thought the manipulation could be so pervasive, so glaring and so in your face, that even the oldest central bank – the Bank of England – and who knows how many other monetary authorities, were openly encouraging traders from these private banks to do more of the illegal activity they had been engaging in – namely manipulating currencies – with their explicit blessing knowing very well such behavior is undisputedly illegal.
(ZeroHedge) While the “developed” world scrambles to find a way to provide Ukraine with a bailout in such a way that Russia doesn’t turn off the gas, Ukraine is doing some scrambling of its own to assure the local banks, which have been plagued by both bank runs and a collapse in the currency to record lows over the past few days, that it will be there to provide funding on a business as usual basis. Itar-Tass reports that “Ukrainian banks will be provided with necessary liquid assets, including cash.” But there is a condition: the funding will only come “if they will remain under open control of the National Bank of Ukraine, the newly-appointed NBU Chairman Stepan Kubiv is quoted as saying on the bank’s official website.”
(ZeroHedge) Well that escalated quickly. It seems the ouster of Yanukovych, heralded by so many in the West as a positive, has done nothing to quell the fear of further economic collapse in Ukraine:
*UKRAINIANS WITHDREW AS MUCH AS 7% OF DEPOSITS FEB. 18-20: KUBIV
*DEPOSIT WITHDRAWALS STILL HIGH IN THE EAST, KUBIV SAYS
This is around a 30 billion Hyrvnia loss (over $3 billion) in just 2 days for the banks and the new central bank chief is considering “stabilizing loans” to help banks deal with the liquidity crisis(though Ukraine’s reserves stand at a mere $15 billion).
Reserves are in freefall… and will only get worse if the bank run continues…
(ZeroHedge) In a desperate attempt to distance itself from the widening corruption scandal linking the Vatican’s bank accounts to fund (and allegedly bribe) a 2007 acquisition by Monte dei Paschi of Antonventa, the Pope has taken an unprecedented step in open the Vatican’s finances to public view.
As Reuters reports, Pope Francis on Monday revolutionized the Vatican’s scandal-plagued finances by appointing an auditor-general stating that the Church must see its possessions and financial assets in the “light of its mission to evangelize, with particular concern for the most needy.
The auditor-general will have wide oversight powers “to conduct audits of any agency of the Holy See and Vatican City State at any time,” a statement said. Francis decreed that the changes have “immediate, full and stable effect,” abrogating any existing rules not compatible with them.
Have a great week!
Anthony M. Cherniawski
The Practical Investor, LLC
P.O. Box 129, Holt, MI 48842
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