Yerk has been warning us about the euro, so let’s look at the chart. In case you don’t know, the euro is pretty good leading indicator for the S&P 500. The FXE is the euro ETF (click chart to enlarge):
From its peak in December the FXE fell hard. Then it rocketed back up, along with the US stock market, in March. Notice that the FXE rally stopped at exactly the 61.8% Fibonacci retracement level (blue line). Since then, the FXE has pulled back in a bearish “broadening top” pattern (black lines). But it rallied back at the end of the week. If it can break above the upper black line, and the red Fibonacci line at 135.17, we could expect it to test its rally peak. If not, it may follow the lower black line down to test its low in mid April.
So far, the FXE is not confirming the new rally high on the SPX.
Thanks for the links armagedon. I reckon Goldman isn’t drinking the Kool-Aid.
Matt
Thanks Matt for true wisdom and perspective to those contemplating a longer term investment strategy. Fact is nothing is safe right now – not even cold hard cash, especially if that cash is American dollars.
Maybe George has it right – trading and scalping whenever the indicators point in your favor – but so few people or even investment professionals are so adept as he is.
Sadly, maybe a “government job” is as close as one can now get to nirvana.
Thanks Randall.
here we go
Joseph Stiglitz: “It’s going to be bad, very bad”
nuff said
Hey gang I thought I drop a few lines:
A quote from Yahoo’s tech ticker:
During RIM’s Q3 earnings call in December, the BlackBerry maker’s co-CEO Jim Balsillie said his company and was in a “land grab” phase.
THAT should be great for AAPL and RIMM margins
VIX closed below 40, the SPX has been allergic to that sort of close.
Given our proximity to the $88 death level for SPY, and eminent loss reports I was very comfortable taking home SPY PUTS and SMH shorts. Yeah that was me top ticking $20.02 on SMH AH
A closing level not seen since the peak on 11/4/2008, only to drop over $6 later in the month.
The bulls had free reign away from earnings reality, and I congratulate all of you who made money going long. I need to learn to be more agnostic.
However I think the music is about to stop — The “earnings” are coming, the “earnings” are coming… Last quarter “earnings” season chopped about 140 points of the SPX by my eye.
At the same time we are nearing very strong resistance levels. Are we really going to push past $88 on the third try, this on a rebound from $67.1? If so, when does it stop, $94.45 the 2009 high, hell why not $100.4 on that very same 11/4/2008 date as the SMH peak
I bet we don’t see the peak of $87.03 on 2/10/09, the day we started the ride to $67.1 $87 – $88 looks like a good level for the bears to have their broadside ready.
A sage told us about the train not backing up, and short term he was surely correct. Now it seems like it is backing all the way up to 87th street, which is the first bear station on the long southbound route to 55th street in downtown recessionville. By then the stimulus bill will have the tracks completed between 67th and 55th streets.
It has been a fascinating and enlightening trip back up to the nose bleed area.
One last observation: Between 1/28 and 2/9 the SPY traced out failed double top. The daily chart looks very similar from 3/26 to today with levels just $3 lower.
Good trading gang.
Matt, great post. Appreciate your insights, as usual.
Matt and Yerk, thanks for continuing to remind us to follow more than the US markets.
Yerk, armageddon, appreciate the links. Will read them all tomorrow.
hank–great to hear from you again.
phil, I wasn’t able to trade most of the day and will need to catch up tomorrow with the charts and my reading. Past couple of days have been confusing wrt EWT (which in my book equates with corrective action). Sorry not to have responded earlier. Where do you see us?
Thanks JG.
Hank, good point about earnings season. If things are as great as the bulls argue, then why are outfits like IBM and the Post Office still slashing jobs?:
http://www.bloomberg.com/apps/news?pid=20601087&sid=ar8O8agGg9AY&refer=home
Wednesday is Uptick Rule Day:
http://www.bloomberg.com/apps/news?pid=20601087&sid=auDbLpawAaEU&refer=home
I didn’t realize that the NASDAQ never had the uptick rule. It was only used on the NYSE.
Matt and Yerk,
My hats off to you as well for the insight. It’s funny, around friends and family, I’m the bear. On this board, however, I’m the bull. One thing to keep in mind. The NAS already crashed in 2002, the big boys like MSFT and INTC are still 60% off their highs from 2000, and the numbers that RIM put up are pretty bullish to my mind.
Bn IBM, Matt, I think I can answer your question pretty simply. My cousin’s husband–honest to god–works for IBM, and I just saw him last week. They’re having, apparently, a banner year. Many divisions are raking in record profits. Still, they’re shipping jobs to India, offering people the opportunity to move with their jobs but at the Indian pay rate, which is about a tenth of the American rate. Simple answer; the recession is giving them cover to maintain margins and slash costs. Market result: bullish.
Whether or not the market will push through or fail here, I can’t say. It seems like the NAS will push up. The question is what happens with bank earnings. If the M2M change and all the other wizardry puts up numbers the market likes, it seems like the bull will run. In other words, this market is event driven and propped up, so I don’t know that I would try to rely purely on technical analysis. The Euro will rally until Trichet goes QE, and I think that is going to happen sooner rather than later. On the other hand, the IMF fund increase is not to be ignored. They just effectively put a floor under eastern europe, and that’s worth alot, it seems to me.
Nice chart of the up/down percentage moves and number of days:
http://www.ritholtz.com/blog/2009/04/sp500-percentage-swings/
A good discussion on components of NFP and why the numbers shouldn’t be summarily disregarded as “lagging”:
http://www.ritholtz.com/blog/2009/04/nfp-understanding-the-lag/
More on NFP:
http://www.ritholtz.com/blog/2009/04/nfp-falls-663k/
This is an interesting recap of the G-20 summit by Ambrose Evans-Pritchard. I don’t always agree with him, but I quite respect him.
It’s just confirmed for me that we will have to more seriously digest what’s coming out of the G20, especially the IMF money.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5096524/The-G20-moves-the-world-a-step-closer-to-a-global-currency.html
Our girl Whitney
U.S. bank woes just the start, Whitney says
http://business.theglobeandmail.com/servlet/story/RTGAM.20090403.wtakingstock0404/BNStory/robColumnsBlogs/home
phil,
I have more reviewing to do, but preliminarily it seems premature to assert which count is correct. The market will have to reveal itself more. One count I don’t see anyone talking about is having this entire move off the bottom be a leading diagonal (5-3-5-3-5) with 1 at 832, and 2 at 779. Thoughts on that possibility? If it did develop into this, then the 5th subwave should slow down in rate as compared to the third. Breadth and speed are supposed to increase during the construction of 1 and 2, and that part seems to fit where more and more stocks/indices participated in the surge.
Matt, sorry to bring this up, but we need to go back to using the SGA (jk, lol).
For the board as an FYI, Prechter’s book states when they occur, leading diagonals (wedges) are either wave 1 of an impulse (a 5 wave pattern), or wave A of a zigzag.
Matt, many thanks for you look at FXE.
To give more of a background… Sherry wanted to bet against the dollar around 1.36 where I warned because of QE rumours in Europe. The dollar didn’t get past 1.31 and then Trichet stepped in and markets went flying. I still don’t see the dollar going up that easily but we are at a junction here.
Fxe and spx are usually directionally aligned but not in the magnitude of moves.
newbie2 the IMF upgrade should put a floor under the UK
Junglegirl, thanks for the links. I saw the “Nice chart of the up/down percentage moves and number of days”, and meant to make some comments, but I forgot.
Matt, I would be interesting to see your fan analysis of that chart. Since 8/11/08 the trend is down but the slope is less steep with every rally. Also none of the rallies since 5/19/08 have had a 100% retracement. What are the retracement levels for the rallies ending on 10/14/08 and 1/6/09?
From 3/9 to 3/26 the rally had a nice upward trend, since then it seems to have run out of gas. In a positive economy one could call it basing, now I think it is just late to the party bulls. Reminds me of the quote from “One Way Pockets” – “The crowd stills buys at the top and sells at the bottom just as it did 100 years ago.” The book is a great, short, read.
WRT to employment- I think it is a lot simpler than much of the hyperbole:
Going into negative growth companies are slow to react so layoffs are a lagging indicator. On the upturn the same applies so employment growth also lags. However, during the slowdown, continued heavy layoffs mean companies are seeing things continue to deteriorate! When we see sub 350K – 500K losses one might make the case things are getting better. Until then when most companies announce big losses in revenue, profit, employment, and provide poor guidance you can take it at face value that don’t see a turn in the near future.
Newbie2, Wow seems like I writing to my old self
I am no expert on IBM, but I believe they are heavily a service company nowadays.
It is the manufacturing companies that will get killed next quarter, as they can’t just layoff billions of dollar in overhead capital equipment and factories.
A word of caution: people should look closely at the 2:44 chart: the rallies state what percentage rise they are off the prior bottom, e.g. 10-14-08 was a 24.35% rally off the bottom, and 1-6-09 was a 27.37 rally off the bottom. This IS NOT THE SAME as discussing what percentage of the previous move down was retraced. Go look at intermediate wave 2 to see this clearly (March-May rally of last year).
A question from a simpleton:
If the euro tanks is this bearish for oil and gold? I’m long puts on XOM and NEM. Perhaps I will consider going short the euro if this scenario plays out.
BTW Matt your blog completely rules and it has been an honor and a privilege reading your analysis as well as the comments.
Rather than the Euro, I’d use the Yen, and it is confirming:
http://tinyurl.com/c6gkgb
Jobless benefits about to run out for hundreds of thousands of people during the second half of this year. Not looking too promising for an economic recovery.
http://www.msnbc.msn.com/id/30045448
Central planning. Will it work this time around, or has the Volcker/Greenspan put run out of power?
http://research.stlouisfed.org/fred2/series/FF
UK Companies Issue 117 Profit Warnings In Q1
yeah recovery for sure. warnings mean squat sometimes but scary lol
Good overview of SPX fundamentals and earnings (back to 1920′s):
http://www.decisionpoint.com/TAC/SWENLIN.html
Is the SPX cheap?
http://www.dshort.com/articles/2009/SP-Composite-pe-ratios.html
Answer: NO
Yerk,
On the UK–I fully agree. I guess they just saved the Austrian banks exposed to EE, but who’s going to save the UK? That’s another 250 billion they’ll need. They’re in the last death throws of empire and decline, it seems to me, and they don’t have the geography and immigration levels the US has to be able to grow. Personally, I think they’re something culturally rotten in the UK, worse than the US.
For the truly lost (like me for instance), here is a good easy to understand vid about how we got into the….
http://crisisofcredit.com/
If we follow the 1929 scenario, this current rally looks like it is nearly done and another plunge is close by:
http://dshort.com/charts/bears-nominal-real.html?four-bears-real
Love the progress of the four bears…timewise, my bet is the current bear is far from over…
oops. excuse the grammar above: “there’s something…”
towelie,
On the massive short on Citibank, turns out to be interesting. I don’t fully follow the arbitrage trade long/short calculations, but that’s why I’m in the humanities:)
http://zerohedge.blogspot.com/2009/02/reason-for-todays-persistent-decline-in.html
Would be curious to know what others on this board who have some good financial math skills think about this. There have been big bets placed on C. If this is real, are there broader market implications? Matt?
Cute – I always liked the lady… Priced in?
http://www.guardian.co.uk/business/2009/apr/05/useconomy-regulators
And why does it pop up in the uk, not in the us??
IBM just pulled the SUN offer.
If you’d a gander from last summer at bridging and breaking down their earnings:
http://llinlithgow.com/bizzX/CompCharts/IBMQ208EPSBridge.jpg
The company’s revenue comes from HW, SW and Services and the revenue % are different but the PROFITs are split in 3rds or were. The only organic growth is SW where they’re the dominant player in middleware and Steve Mills has turned the SW Group into hunter-killers. BUT Gartner just came out with an ugly forecast for the rest of the year. Put that together with the earnings bridge where buybacks and pension engineering along with currency conversions and you have a poor outlook.
Relative to the rest of the Tech industry though they’re the only B.
FWIW
phil,
My formulas and charts on various time frames remain most consistent with being on (4) of P1. Time will tell. Other counts are certainly valid, too. No way to know for certain at this juncture, imo.
Wow yerk. I am amazed that is coming from a US official. That single article has given me hope that there might actually be some people in power who understand that there are alternatives to our current path.
“The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management is preposterous.”
That made me smile.
The link below is a great read. It delineates in a clear, easily understood manner what the current “plan” does (bails out bondholders) and presents viable options (receivership) for solving the crisis. It also addresses mortgages. I will ask my Representatives to read it. On trading blogs, we share helpful and/or educational materials with each other. Why not also share with Congress and the Senate?
http://www.hussmanfunds.com/wmc/wmc090330.htm
Yerk, thanks for the link.