Now the End is Near and so I Face the Final Curtain

Wonderful Wednesday.

We expected this rally (as per our March 10th post) and now all US markets are well on their way to breach the all time highs with the small caps leading the way. If you want to buy now, its too late, as i warned previously. You had your chance at the 2040s level, we're so far away from an appropriate risk reward scenario its best to stay on the sidelines and play the short side when we get it. The target for this move is in the 2130s… then what? Then comes the 10% correct with the brunt happening in the first week of May… Until then expect that tax season ira money to chase this rally.

What's alarming is that NO ONE is talking about where the Greek 3yr bond is trading at. Right around 20%. Greece can't pay and the market knows it. They can't even come up with the cash to pay roughly 1.6B in retirement benefits owed to its citizens. This is the 3rd time Greece needed a bailout. These banksters  didn't outline a way for Greek citizens to work their way out of a recession, instead these GERMAN banksters are destroying the peripheral European economies for the sake of creating a Union which only Germany benefits from (forex competitive advantage). ENOUGH IS ENOUGH!

Greece’s economy has shrunk by a quarter under the conditions laid down by Germany and other euro-area nations in bailout terms. The jobless rate increased in the fourth quarter as the economy began shrinking again and a political standoff rekindled concern the country could leave the euro area. The percentage of adults living in households where no one works rose to 19.6 percent in 2013 to 1.1 million, from 7.5 percent in 2008.

Lets not be out of touch with what's happening. Ask yourself would it be okay if New Yorkers would be charged 20% on their debt, while Florida actually got paid to borrow? And this in the same Union which we are suppose to be living "together". No freaking way! 

Yes. The Euro will eventually look different in 5 yrs. 

Beside the Euro news are debt limit shenanigans will come front and center again. Expect the selloff. 

Also, lets look at the health of the underlying securities of the Dow Jones for instance. 30% are near 52 week lows. Not Healthy at all.  The laggards include the commodity-related names Exxon Mobil (XOM), Caterpillar (CAT) and Chevron (CVX), as well as broader market stocks such as American Express (AXP), IBM ( IBM), General Electric (GE), McDonald's (MCD), Verizon(VZ) and AT&T (NYSE: T).

Dollar is the driving force behind OIL's Move, Don't assume otherwise

The rate of change in the Dollar has not been seen appreciating at this pace in quite some time (back in '08 was the last time and never before that). This is happening mainly because every other central bank is easing, meanwhile we "look" to be embarking on tightening.

2 reasons the Fed doesn't need to tighten and probably won't raise rates until 2016:
       1. By ending QE and not purchasing mortgage backed securities, that is in essence tightening.
       2. The dollar's appreciation guarantees low inflation for the next year

The Dollar Index hit 100 this past week. Huge.
Looking at it versus the Euro, the 1.08 was a level i thought we had support, but with many humans trading and behavior becoming extremely bearish, i believe we overshot temporarily and will revisit 1.08 and eventually 1.10 before the end of the month.

That will give a a reprieve to oil's slide lower and will allow it to rally to $65-70 into June before rolling over again. Oil and the Dollar move tit for tat.

As i mentioned in the previous post.. now until June will be an extremely volatile time trading, so stand aside.

My take away is if OIL can't close below $44 for 3 days, its done going lower. However if it stays below $44 for 3 days we will quickly drop to low 30s.

I believe OIL takes off higher in a big way once FOMC meeting passes on Wednesday (in 3 days).

That means i'm bearish for the short term on the dollar (mean reversion) and bullish on Oil. We'll see

STOP with the Oil Glut rants already.. and we have plenty of Storage Capacity Left

All of sudden everyone is a Bear on Oil. In fact now you have many of those who never thought we would get down into the $40s, declaring we're filled to the gills and prices will soon collapse. That may be the case, but not because of inventory reasons. It would happen if the Dollar continues to rip higher (which i will address in a new post shortly after).

The US is not running out of Storage capacity, contrary to what you read by the EIA.

"Oil began the day lower after the IEA, which advises industrialized countries on energy, warned the global glut was building and the United States may soon run out of tanks to store crude. U.S. supply so far shows precious little sign of slowing down,  the IEA said. Quite to the contrary, it continues to defy expectations." -http://finance.yahoo.com/news/brent-holds-above-57-bargain-034958839.html?l=1

Are we going to let these statements actually dictate how we are going to trade with out digging deeper into actual analysis, instead of solely relying on these talking heads word. Since October, national inventory of crude oil has been increasing 1 million barrels every week. Yes at first blush, that seems like we have an OIL GLUT, but those numbers are not telling you about those that are storing Crude oil in anticipation of higher prices later this year. The market is Contango, so it makes sense for participants to store oil now and sell in 6months time locking in at a price that is ~$6 higher. 

Just because someone says we have the highest inventories of Crude in decades, doesn't mean its bearish news. We need to get to the facts, which most pundits miss. How much storage capacity is there at Cushing? The Answer is 71million barrels with more storage under construction. So that means if we continue building inventories at the same pace as the previous 6 months, it would take 4 months to be at Capacity. But there are events that won't make that happen because we are entering the driving season and refineries are coming back online, so Oil that is being stored, won't go into storage next month but go to a refinery. The difference of how many barrels a refinery uses in the summer vs. the previous 3 months is 1million barrels. So that means don't expect more builds to happen as the summer driving season begins. 

2 more factors are that production will slowly come back down as rigs are being taken offline and secondly check out how many SUVs have been sold in recent months which will lead to some marginal increase in consumption. 

Finally check out what the EIA published a few weeks back:

We are only at 60% capacity. Relax we have PLENTY of storage room and there's no need to panic about where to put the oil.

What is the driving force for the price action in Oil ? THE DOLLAR!

I will address this in the next post.

The Comeback: SPX 2140 & NASDAQ 5000

Amid a Global Sell off, traders are looking for reasons why. What ever the reason, it will long be forgotten and those that sold wished they'd have bought. Especially going into a Fed Meeting where they are highly likely not to acknowledge a rate increase and leave it more status quo.



Even the VIX is overdone on the Upside

Also one final technical indicator the NYSE Mclennan Oscillator is way oversold.

This all sets up for a low risk buy trade.

THE GOLDEN RATIO & π: The Phi and Pi relationships, a mathematical importance to Markets

Phi, Pi OH MY!

• Phi, the Golden Ratio that appears throughout nature.
• Pi, the circumference of a circle in relation to its diameter.

Look to the pyramids. Look to Nature.

This site goes into great detail about life's most intriguing set up: http://jwilson.coe.uga.edu/emat6680/parveen/fib_nature.htm

If we apply two of Nature's special laws, the Golden ratio and Pi, to the markets we find a confluence of price levels almost at nearly the same price!!

Let's break it down.

Phi's number is 1.618  

The Fibonacci extension from the 2009 low, gives us a price target of 2138

Pi's number is 3.14159...

Multiply Pi by the closing low in the S&P500 (676.53 x 3.14159) = this will yield a price target of 2125.38

The Market will make a ROUND TRIP MOVE or the GOLDEN MOVE  as it approaches these targets. 

Once the move is done, it will be time to get off the bus. And we'll witness the bull market high for some time.

Ultimately my price target for the S&P500 is 2150 based on Pivot Point Analysis (using the /ES Sept contracts)

Remember these are important ratios that are around us and with us everyday of our lives.

Respect them.

 

CYCLES CYCLES CYCLES

The idea of cycles of prosperity and cycles of suffering is nothing new. The bible tells of the story of Pharaoh's dream, which Joseph interpreted as 7 yrs of feast and 7 years of famine. Even back then they acknowledged a pattern or cycle to matters. It is also evident that nature moves in cycles. The earth spins around once a day, while circling the sun once a year. Because of this we have seasons, which determines when Plants and Animals are born, grow and die. Other cycles govern when markets, societies and civilizations peak and decline i.e (K wave).


I also want to add that Circles are a form of cycles. When you run around the track, you make a full circle or when the hamster goes around his wheel, once around is called a full revolution. Its a cycle, there's a starting point and ending point.

With regards to Circles, you have one of nature's most amazing ratios besides Fibonacci, Pi explains the  relation of a Circle's circumference to it's diameter. It's a mathematical constant. Circles are everywhere=Pi is everywhere. The disk of the Sun. The spiral of DNA Double Helix. Pupil of the eye. Also in Physics, Pi describes waves of light/sound.

History repeats itself

Because all the concepts of technical analysis are based on studying historical data, validity of this premise is crucial. Several studies have shown that particular events occur repeatedly in the market. These events are reflected in market price, which is again the primary source of information for particular indicators and chart analysis. Many of them are based on patterns in human psychology that do not change. For example, one such situation is regularly visible when resistance (a psychological barrier limiting the price rise on the upside) is broken. If the price breaks above the resistance level, traders who have opened long positions cheer, but at the same time they regret that they didn't buy more. Traders with short positions realize they are on the wrong side of the trend and hope that the price will drop back to the level of former resistance, so they could exit their positions without incurring losses. Traders that have not yet committed any money in the market are waiting for the price to drop towards the level of former resistance as well, in order to be able to initiate long positions and capitalize on the upward trend, while buying cheaply. Because all these groups intend to buy near the level where the resistance was, this level becomes a support for price – prices will not fall under this level because of high demand. Technical analysis includes many such concepts.

Price Discounts Everything (this is NOT the Efficient Market Theory)

Technical analysis is a kind of market analysis that compared to the fundamental analysis does not require constant monitoring of vast amount of information from various sources. On the contrary, it is based on the belief that all relevant information are already reflected in the market price and any new information will impact the price as soon as they are released. That's why for the purpose of conducting technical analysis, all you need to watch is market price and volume traded. In case of futures, you need to watch for another figure – the open interest indicator (the amount of currently outstanding contracts in the market). Hence, it is completely sufficient for a purely technical trader to have only a data feed consisting of market price and volume traded in real time, which is usually already included in a broker's basic fee. We can say that while a fundamental analyst attempts to determine or at least estimate a company's intrinsic value, a technical analyst does not concern himself with this value at all. 
His only concern is whether the price of its shares will go up or down in the future. But, as opposed to a fundamental analyst he does not care why this happens. Thus, a technical trader does not have to subscribe to expensive information services such as Reuters or Bloomberg, and hence he can save a lot of money. Moreover, technical analysis can be applied practically to every market – to equities, bonds, commodity futures, currencies, etc. Therefore, a technical analyst has a substantial advantage over his fundamentally oriented peer, because he can always choose to trade the market in which there is currently most action, as he is not bound to a particular market.

Prices Move in Trends

The first and also the key premise of technical analysis is that asset prices tend to move in trends. Three kinds of trends exist- the upward trend (bullish), the downward trend (bearish) and no trend (sideway move). In case of a sideway move, prices oscillate in a narrow range for some time, whereas their future direction is hard to determine. According to technical analysis, a trend is in effect until it reverses. That's why most traders focus on trading the market at the time of trend reversals, as it is at that time when the biggest price moves occur, which means high potential for profitable trades.

However, there is not only one trend in a stock chart. On the contrary, there are several trends in one chart. For example, in a monthly chart we can find a long-term trend, which actually consists of many smaller trends. In a daily chart we can find a daily trend, in an hour chart an hour trend and in a minute chart a minute trend. Most of technical analysts recommend trading in the direction of the trend. They usually start by determining direction of the long-term trend and then gradually move to lower timeframes, whereas the key trend to watch should be the one corresponding to the time horizon during which we want to have the position open.

Technical Analysis: PRICE IS THE LANGUAGE OF THE MARKETS

Technical analysis can be defined as a method that attempts to forecast future price trends by the means of analyzing market action. It was established as early as 18th century. However, most of its methods as we know them today were created in the first decades of 20th century. The core idea of technical analysis is that history tends to repeat itself. That is why we can find certain situations in the market that occur regularly. These situations can be discovered by chart analysis and technical indicators, which we can use for our advantage – and that is precisely what technical analysis is trying to do. 

There are several approaches to technical analysis – such as the Dow theory, Elliot wave theory, Fibonacci's analysis, cyclical analysis and so on. The most commonly used methods can be divided into two major branches – namely chart analysis (also called charting) and statistical approach. With chart analysis, the analyst is trying to find patterns that price creates in the chart and that occur repeatedly. For example, head and shoulders or double bottoms are considered typical chart patterns. As soon as the analyst identifies such a pattern, he can make a trade based on the direction the price should follow based on the type of the pattern. 

Another branch of technical analysis is constituted by the statistical techniques, which comprise mostly the study and use of various technical indicators. These indicators are computed from historical market data and are mostly used for forecasting trend reversals or changes in strength of the trend. Many of the indicators yield precise buy and sell signals. There are several kinds of indicators – from the very simple ones like moving averages to the very complicated such as Swing index, for which the mathematical formula is several lines long.

It is the job of the technician to know how to use and which indicators to use, so to best figure out and plot the future path of the markets.

Market's Bull Market 6 Year Anniversary

The S&P 500 (SPX) this past Monday, March 2nd, closed at all time highs 2117.52.
After a 6 year ageing bull market, it seems like a good time to reassess where we are, what hurdles we face, and where we might be headed.

The March 6, 2009 intraday low of 666.79 makes you wonder sometimes what forces are at play. That friday we closed the day at 683.38 and never looked backed. The rally has surprised many, scared shorts several times, and amazingly still keeps going.

What can stop this Bull Market??

With many Big Money Managers, such as the Rothschilds (http://www.zerohedge.com/news/2015-03-05/lord-rothschild-warns-investors-geopolitics-most-dangerous-wwii) acknowledging the rich valuations throughout equities, markets can stay overvalued for long periods of time and vice versa.

Since computers (Programming formulas) run the show, I think we can learn a lot from numerology studies, as the Big Money get in and get out at certain price levels for a reason.

Before the Securities Act of 1933 (companies must release financial statements) the majority of Wall Street analyzed stocks & commodities by using Technical Analysis. Yes that does seem like a wild concept to grasp by many, since over 80% of smart money now uses fundamental analysis to guide their trading & investing. Even though that is the case, fundamental analysis can't explain price moves like technical analysis can.


In the following posts I will elaborate more on technical research which will help you navigate and time markets far better than any fundamental piece out there can.

Markets have a language … PRICE!