THE DAILY FORK FULL
The Asian markets are ahead of the US so FXI, the US ETF for large-cap Chinese stocks, was able to respond Friday to the big drop in China. The reaction was mild with price gapping down only 2.1% on the open and dropping another 33 cents during the day.
Regardless of the hot air being blown by the Fed, interest rates are rising. While they like to pretend that they are in charge, the markets are raising rates now and not waiting "until September" like the Fed is saying.
This large-cap energy stock is considered relatively safe as stocks go, and with a yield of 3.4% it throws off a respectable amount of income. We will have to see if investors continue to hold the stock at $70 or if we see a large capitulation as they puke their shares into the market.
NASDAQ briefly touched 5132.52 in March of 2000 and then backed off before the close. Today price reached 5143.32 before backing off. The close today at 5132.95 was still above the prior high.
Dr. Copper doesn't care how much fiat currency gets printed or how many quantitative easings occur, he is only interested in the real economy where people are either building things or they aren't.
The blue modified-Schiff fork has identified support and resistance levels throughout oil's decline from $100+ down to sub-$50 and it continues to mark the upper end of oil's current price range
We will find out pretty quickly what the Transports are going to do next. Price is right at the upper median line of the Andrews pitchfork and this is a proven resistance level.
The only thing holding the US economy together at this point (besides spit and bubble-gum) is low interest rates. The strong rise in TNX is definitely a cause for concern.
The Dollar is demonstrating a great deal of strength and we should be very cautious about assuming that it is rolling over at this point.
The Fed keeps saying they will raise rates eventually but rates appear to be rising without the Fed's intervention.
This particular doji occurred on the third day that price was pushing against resistance at the median line of the pink Andrews pitchfork. Having the doji at an obvious resistance level suggests topping and not just hesitation.
Instead of spending more time questioning the social media phenomena, let's focus on the stocks of the four biggest companies in the sector and see what the market thinks. After all, from our perspective as traders and investors, the market is where the rubber meets the road.
Gold is up about $35 in the last few days. Price has risen to the 50 day exponential moving average and is now pulling back a little to consolidate the fairly substantial rise.
Bull rallies don't end all at once, they end one stock at a time. Seeing signs of topping in a major stock like AAPL contributes to the idea that the current bull is getting tired of running.
Recent commentary has suggested per ounce prices of $8000, $22,000 and $50,000 - if the bulls are already talking about these prices, what price will Gold have to reach in order to fulfill Mr. Russell's observation? And for the silver bulls, realize that $50,000 Gold and a 15:1 Silver:Gold ratio means $3,000 per ounce silver.
The equity markets had a big move Friday and it occurred on large volume. The trigger apparently was the Bank of Japan moving to negative interest rates. Negative interest rates will likely push money into equities as people and institutions seek yield and avoid paying for the "privilege" of parking money in banks.
The equity markets were extremely oversold and due for the bounce that started on Wednesday and continued Thursday and Friday. The question now is how far this rebound can run. Are the markets still in correction mode or have we now seen the bottom?
In my opinion the equal-weighted SPX is more accurately portraying the health of the broad equity markets. The index moved decisively below its August low before finding support along the lower median line of the Andrews fork. It is reasonable to expect a retest of the August low from below now - this test will coincide with the fork's median line.
Speaking of manipulated markets, did you catch former Fed President Richard Fisher's interview last week? He admitted that:
- the Fed intentionally over-inflated the financial markets
- markets are now correcting from this manipulation
- the Fed is out of ammo
This is an ugly chart and, since junk bonds were financing the stock buy back programs, this selloff in high yield bonds suggests that companies will be cutting back on their share repurchase scams (oops, I mean programs).
This monthly chart of the NASDAQ shows the potential for an upside move. This cup & handle pattern has a target of 8,600 points. Think about the tech-heavy NASDAQ index - these are the companies creating technology that will displace human beings from their jobs. While it makes sense that the index could power massively higher in coming years, is it really a good thing for our world?
The markets are at a critical juncture. They are either getting ready to break higher and make new highs or they are setting up for a dramatic move lower. As traders we can take advantage of either situation but there is no reason to get chopped to pieces while the markets flail back and forth. Remember that cash is a position too.
As we talked about last week, the markets are at an important inflection point. They are either going to break to new highs and continue this aging bull market (six years!) or they are going to move into a bear market and drop significantly lower - perhaps as much as 30-50% lower. Based on Friday's action, the downside move is looking more likely.
Listen, if the markets break higher from here there will be plenty of time to get on board and the upside could be spectacular. A break lower could be even more spectacular with the market losing 25% or more of its value very quickly.
We have a big news week ahead of us and markets may be volatile as a result. The talking heads at the Federal Reserve will be out in force with Yellen speaking twice (Wed & Thurs) and seven (yes, seven!) other Fed babblers blowing hot air during the week. Their focus will be on the Employment report Friday morning and how they will or won't raise rates.
As we know from the 5 rules for using Andrews pitchforks, price is always targeting the next median line. If NASDAQ can break above current resistance we will have a target of about 6100.
We have to take into account the incessant money-pumping of the central banks. Yellen recently threatened negative interest rates for the US. Such a move would likely cause a significant move into equities as money searched for yield in a NIRP environment. As always, in the current financial world, your guess is as good as mine ...
Gold was looking good until Wednesday. I'm sure it's just a coincidence that the paper price of Gold always drops significantly on the day of an FOMC meeting / announcement.
This chart is meant to emphasize the failed triple-bottom zone where, IMO, a significant amount of resistance can be expected. After a multi-year downtrend many people were expecting the $1180'ish level to be the bottom.
Along with the 61.8% retracement level we are coming up on resistance at the breakdown level. This will be the first test of this area and we will be able to judge the strength of the current rally by how price behaves here.
It is certainly possible that price will push higher again before heading lower. After all there are lots of people and institutions with a vested interest in seeing higher prices. When money comes from a printing press anything is possible.
As I was looking at this chart this morning a Clint Eastwood quote came to mind: "Do you feel lucky punk?"
Based on the rules for using Andrews pitchforks TNX is targeting the red ellipse at about 1.82%. This TNX target will probably be reached when equities head lower after the current rally runs out of energy.
It's possible that price has already reached its reversal point at the 38.2% extension level since support was found there on both Thursday and Friday. If this support fails our next target is the 61.8% extension and a revisit of the August 24 low. If we are going to see a "revisit the low and dip below" scenario, there are several possible support levels between 1740 and 1850. A test of any of these levels could lead to a strong year-end rally.