David Singer observes:
There is a tug of war. On one side, you have this pattern and the bears. On the other, you have the bulls who are fueled by either belief in the economic recovery or prolonged 0% rates…
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While yesterday's US stock market close was poor, Asia and Europe didn't follow today as debt in Greece, Spain, Portugal, etc... rallied, their CDS narrowed and stocks bounced. The Greek finance minister said January tax revenues came in above expectations and that spending was below target for the month and said "that means the deficit reduction for January is well within what we have promised." The euro is rising in turn. Also helping is the story that Trichet is headed to the European Union leaders summit a day early in order to address Greece's problems even as the Greek finance...
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October 27th, 2009 at 12:30 pm
Now you’ve done it David. This rising wedge is beginning to get as much coverage as that failed H&S everyone was talking about back at 957. It’s no where near the amount recognition as that well advertised pattern. This should get interesting….if Bob Pisani, Bill Griffeth and Mark Haines start talking about the rising wedge, then you’ll we’ll get a ‘false break.’
October 27th, 2009 at 12:44 pm
That failed H&S was BS… This thing is the real deal… Readers can check out the Stockcharts.com Chart School article on this pattern here –
http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns:rising_wedge_reversa
But, given the ZIRP and the tendency for this to be a “Wanger Market”, i.e., buy on the dips, a false break is certainly a possibility anyway. I’ve seen this pattern being talked about on various sites, etc., and the fact that it is being trumpeted by bears now, is why I am interested in this chart…
Alot of people are calling for the end of this leg up… Notably, Jeremy Grantham and Bill Gross, today…
This call is not baseless given the huge run up and the resistance at 1100 on the S&P, among other reasons…
I am curious regarding the following question which I posed to BR and now pose to you ( the TBP community)
Can asset prices go down on any sustained basis with coordinated global stimulus, bailout, and ZIRP in place?
Readers can check out the Stockcharts.com Chart School article on this pattern here –
http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns:rising_wedge_reversa
October 27th, 2009 at 12:48 pm
This is also a good link… http://www.trending123.com/patterns/rising_wedge.html
October 27th, 2009 at 1:19 pm
Singer: Take a look at that Transports daily chart. Crazy drop since 10/21
October 27th, 2009 at 1:30 pm
Rainy days bring out the doomfreaks. Prepare for The Dow’s first minus-1ooo point day, sometimes called The Wedge, before February 2010. Get underneath this market.
October 27th, 2009 at 1:31 pm
Wanger:
yes. there has been a steep decline since then… however, the most interesting thing about this chart is the volume… after all, the price could just be consolidating in here, waiting for a chance to breakout…
look at the price action since the beginning of september 2009… there have been two up moves and two down moves, with the net result a sideways pattern…
the volume on the down moves has been much more substantial than on the up moves… very interesting…
October 27th, 2009 at 1:32 pm
im talking about the Wanger-referenced daily chart of the Trannies…
October 27th, 2009 at 1:37 pm
in true deflation- doesn’t $ become King and all other asset classes fall- ulimately?
in the GD real interest rates were substantially higher than the nominal rates (nominal rates in the 2-3% range) due to deflation- and equated to 10%+ real rates-
so even if there is a ZERO rate policy- if deflation is established- then the real rate can still be prohibitively high because you are paying back a loan w/ stronger dollars
October 27th, 2009 at 1:39 pm
Singer: Yes, the volume on the down days has been stronger. The transports daily chart is hitting some critical levels right here with no signs of holding any sort of support if this momentum down continues to accelerate.
October 27th, 2009 at 1:46 pm
@Ahab,
“IF” there is true deflation…
the problem here is the confidence in the US Gov and the Dollar… in the GD the fiscal situation was different…
if the investing world has confidence in the fiscal situation in the US, the Gov, and the Dollar, then when the isht hits the fan, they can pile into the Dollar and Us Govvie Bonds…
if they don’t have confidence in the above, then the money flows into assets and drives them up, i.e. massive equities pop…
Right now, we don’t know which scenario will play out…
October 27th, 2009 at 1:47 pm
@ Ahab:
Depends on how inflation is calculated. If it is calculated using CPI, which is so utterly full of bullshit until it’s meaningless, then we sorta have deflation, which would mean dollars are good as gold.
But if consumer prices are coming down because demand is decreasing or has decreased, then that’s not deflation–that’s just an appropriate move along the demand curve towards lower prices because of lower demand. This could also just be the result of lower-cost inputs or more efficient use of them.
In any event, ZIRP means that interest rates are already as low as they can go. The only way to decrease them further would be to depreciate the currency, i.e., inflation. But if velocity decreases as fast as money supply increases, you’ll get Japan, which is what we may have the beginnings of already.
October 27th, 2009 at 1:48 pm
Who is going to buy all the US debt? The interesting answer is: we are. Domestic non-dealer buying is up.
http://acrossthecurve.com/?p=9687
October 27th, 2009 at 1:50 pm
“But if velocity decreases as fast as money supply increases, you’ll get Japan”
Exactly. Domo arigato, Curmudgeon-sensei. LIQUIDITY TRAP, BABY !!!
October 27th, 2009 at 1:51 pm
@ Wanger
Besides unicorn wranglers and ghost psychologists, where are there legitimate seeds being planted for new job growth in the U.S.?
“James is really your buddy?? Wow, that’s quite a blurb. “Consumers will find jobs much easier to get, and the resulting optimism (and income) will prompt them to start spending again.”
Again, I ask this question everyday to anyone who spouts this hiring nonsense – where are the jobs going to come from??? We’ve had negative employment for the entire decade. Is it just magically turn around with unicorn wrangler jobs? Until someone lays out where all the jobs are going to come from, they’re just talking undeniable nonsense.”
October 27th, 2009 at 2:04 pm
Roubini Says Carry Trades Fueling ‘Huge’ Asset Bubble
http://www.bloomsberg.com/apps/news?pid=20601087&sid=a0kGaq9yTF0A
October 27th, 2009 at 2:09 pm
@Singer: Roubini come lately? Where you been? Tell us something we DON’T already know.
@leftback: Have you been talking to the Roub-man?
October 27th, 2009 at 2:15 pm
SINGER @ 12:44
“Can asset prices go down on any sustained basis with coordinated global stimulus, bailout, and ZIRP in place?”
Yes, and no. Central bank tightening has already begun, most notably in Australia. Norway is likely to be next.
http://www.nationmultimedia.com/2009/10/28/opinion/opinion_30115383.php
And even in this country, the Fed will eventually stop buying Treasuries and MBS. The point is, there will not be a sharp line in the sand where monetary stimulus ends. The markets will anticipate monetary tightening before it happens.
October 27th, 2009 at 2:34 pm
@Mann
I was adding Roubini to the list of people who are calling “asset bubble”… Is their anything we DO know?
@DL
point taken… I agree… The issue becomes when does the spiggot get turned off? Powers that be unlikely to shut it down early… I have heard anywhere from 1 year to 2 years from now… Fed itself says for an extended period… we shall see…
October 27th, 2009 at 2:36 pm
@Singer: Wasn’t criticizing you, but think Roubini is a little late to that party, partly because he’s buddies with Timmy and Larry. Everyone knows that.
October 27th, 2009 at 2:37 pm
@Singer: Might that “spigot” be shut off for them at some point by some exogenous event?
October 27th, 2009 at 2:44 pm
i read somehting recently that stated the Fed will have a hard time extracting liquidity because it will crash treasuries-
akin to the problem of selling a huge stock position- because it is less liquid in large quantities and will crash prices
sounds quite plausible
also re deflation/credit $ destruction- only way out- the way I see it-
will happen one way or another- the USG/Fed will only prolong what is required to rebalance the economy
October 27th, 2009 at 2:53 pm
@ahab: “Credit Destruction” will = phony “wealth” destruction. That’s clearly what they’re trying to avoid. Extend and pretend baby.
October 27th, 2009 at 2:54 pm
No worries. Roubini has been reading LB over at Macro Man on the topic of JGBs, so now he is SCHOOLED.
REMEMBER: The Fed will crash ANYTHING to avoid crashing Treasuries. See: Japan, 1990s. They will screw over commodity specs, long equity funds and high yield investors long before they will screw China, Japan, Vladimir Putin and Bill Gross. You know what happens if you piss off Putin? Polonium tea, Mr Geithner?
October 27th, 2009 at 3:04 pm
I’ve been saying for months that it was not safe to short the market so long as the dollar continued to trend lower. We’ll need to watch the next couple of days to see if the breakdown is confirmed, but it looks like there is a strong possibility that the trendline is broken and that the dollar will rally. I don’t think this causes a big move lower as the bears would expect, but it does at least pause a move higher and makes it acceptable to think about shorting stocks. We’re still above the 50, 200, and 300 SMAs on SPY and barely below the 20 right now. It is premature to say that the rally is over but the breakdown today on UDN (if it turns out to be a breakdown) does change the market structure; this can only be considered bearish.
Let’s see what the GDP number is on Thursday.
My thoughts on UDN and UUP –
October 27th, 2009 at 3:36 pm
no doubt- the Fed does not want to crash treasuries- but then the problem becomes- how to extract liquidity-
w/ zero velocity- who cares i guess- but-
if they do trade treasuries for dollars- that’s a lot of treasuries hitting the market-
so . . .the idea that the Fed can extract liquidity quickly appears highly unlikely-
observations?
October 27th, 2009 at 3:41 pm
They will not do ANYTHING quickly, nor do they need to. They merely need to cease the QE, add some reverse repo rhetoric, and take away the statements about indefinite low interest rates. Jawboning first, before action.
October 27th, 2009 at 4:02 pm
“Jawboning first, before action.”
of course- that’s a given-
but this- from Einhorn-
“There is a basic rule of liquidity. It isn’t the same for everyone. If you own 10,000 shares of Greenlight Re, you have a liquid investment. However, if I own 5 million shares it is not liquid to me, because of both the size of the position and the signal my selling would send to the market. For this reason, the Fed cannot sell its Treasuries or Agencies without destroying the market. This means that it will be challenged to shrink the monetary base if inflation actually turns up.”
thus the dilemma- unless it is done ever so slowly- assuming inflation is even on the table any time in the next few years-
i guess my observation is- that they better start extracting long before any signs of inflation- so they can do it s l o w l y – otherwise the Fed may put themselves in a incredible bind-
what say ye?
October 27th, 2009 at 4:44 pm
Singer,
As I recall, though now it seems forever ago, in December 2007, when all the global cb’s got together to “do something” it didn’t work.
We need BB and company to do everything exactly right for this to all work. Good luck with that. I’m a lot more worried about asset prices going down than I am up at this point.
last, one might question if any pro’s were buying the Wangtard dips, a closer look it seem smore like strong hands selling to weak for the better part of a month now.
Breadth looks like crap and the reversal yesterday in the a/d ratio reveals there is underlying trouble for certain.
October 27th, 2009 at 4:54 pm
“i guess my observation is- that they better start extracting long before any signs of inflation- so they can do it s l o w l y – otherwise the Fed may put themselves in a incredible bind-
what say ye?”
Agreed. They need to run up a string of false ” wolf cries ” , so that when the real wolf arrives , nobody pays any attention.
October 27th, 2009 at 5:07 pm
@B22
For sure, my natural inclination is exactly as you put it. My fascination is the degree to which this oversold condition and liquity wave has and may be able to continue to produce a higher stock prices.
October 27th, 2009 at 7:32 pm
there is one problem with the comments.
Bears reinforcing bearish views….have seen that happening since May.
kind of dangerous if one was investing based on it.
I agree that the fundamentals of the economy sucks….but IMO markets are based on huge speculation rather than fundamentals.
I will not be suprised if this things keeps going up and we make all time highs next year…….or it crashes taking out the previous lows….its all just a big game of trading.
October 27th, 2009 at 9:27 pm
@techy
either one is possible… the question is what happens in between now and then…
October 27th, 2009 at 10:26 pm
Harry Wanger is a bear now?
October 27th, 2009 at 10:39 pm
While I don’t doubt a dollar rally is due, and the much anticipated equity “correction” is at hand, we are oversold. Bucky has not broken the downtrend, and the distinct possibility of a whoosh down to the low 70’s is quite possible. If this happens, an inconvenient S&P rally to 1120 could catch many shorts/neutral players off guard.
The Transports are at the mirror image of the double top, at the respective Fibb # support number, and it’s crunch time. As Coop de ville says, the second mouse gets the cheese. We could well see a month end jam higher. It’s a steel cage match going forward.
The index only put call near 2 has me closer to the buy ticket than the sell…..we’ll see. Bring on the GDP number?
October 28th, 2009 at 12:08 am
@techy,
please, how many times do I read that comment at this site. This was named one of the Top Bearish sites last year so you would expect what exactly in the comments section? Go back and read the comments here from March, plenty of us were bullish, there was a certain Brit that called a bottom. Find a better reason to be a bull if you are so inclined.
October 28th, 2009 at 6:48 am
call me ahab -
“i guess my observation is- that they better start extracting long before any signs of inflation- so they can do it s l o w l y – otherwise the Fed may put themselves in a incredible bind-
what say ye?”
I say: this is such an imbecilic statement it’s obvious you have no clue WTF you are talking about. ROTFLMAO!!!!!
October 28th, 2009 at 6:55 am
call me ahab -
have you been paying ANY attention to what Bernanke has been saying for the past for the past seven years?
enough, I waste no more time on you.
October 28th, 2009 at 3:57 pm
insaneclown-
????- why so worked up-
from your statement- you do not believe that the Fed – if it tries to extract liquidity in short window and in large quantities -it won’t put pressure on treasury prices??
my reasoning is- if the Fed keeps its easing stance to the point where inflation starts appearing- it would then be too late to quietly mop up liquidity before inflation really kicks in- and if the fed tries to a more aggresive approach it will crash treasuries- and thay can’t let that happen- thus the bind they would be in-
read Einhorn’s most recent letter- he explains it better than i can-
http://www.valueinvestingcongress.com/downloads/n09/einhorn/Einhorn_VICNY09.pdf
good stuff-
feel free to elaborate on why you disgree
October 28th, 2009 at 7:58 pm
Einhorn’s a bright guy. You should listen to him if you are incapable of figuring out what the Fed’s plan is, regardless of the fact that they have been completely transparent about their intentions for YEARS.
October 29th, 2009 at 8:43 am
“You should listen to him if you are incapable of figuring out what the Fed’s plan is”
well not everyone can have your incredible insight i guess- and that you insinuate you have it all figured out but don’t elaborate pretty much says it all-
but in the end- who really cares what you think anyway-
you are obviously a child
October 29th, 2009 at 7:57 pm
Normally, I wouldn’t explain anything to a condescending jackass like yourself.
but here’s a hint dillweed….
http://www.newyorkfed.org/aboutthefed/fedpoint/fed04.html
October 29th, 2009 at 9:19 pm
HAHAHAHAHAHAHA-
glad you have so much faith in well laid out plans-
anyway- it’s been fun- but-
not that fun-
but explain- why are you so pissed off?
really dude- regardless of my original comment which you took a disliking to- you seem to have really taken a dislike to ol’ ahab- care to explain why- and be honest-
anyway-
your handle’s cool nontheless
October 29th, 2009 at 9:42 pm
allright. you’ve been a gentleman about this much more so than I.
I tend to get worked up over nothing. My apologies.