TrendView

BETFI Index Marches to The Next Target

2012-01-18T23:14:00.001+02:00

As discussed in the previous post more than two months ago, the Romanian BETFI Index turned bullish and reached the 20 500 - 21 500 mentioned target area by the end of last year. As also hinted in the same post, this target area was the first stop before going higher towards 23 000 later on this year.

In the weekly chart above we see the index challenging the weekly EMA50 that proved strong resistance last year. If successful by the close of this week, BETFI next target is the 61.8% Fibonacci retracement of the 2011 downtrend, the falling weekly SMA200 and a previous congestion area, all converging around 23 000.

In the daily chart below we notice the potential a-b-c correction to the 2011 downtrend with the "c" leg symmetrical with the "a" leg (that reached the previous target area around 21 000) pointing to the same discussed zone around 23 000.

The break of the falling daily SMA200 with increasing volumes in the first weeks of 2012 is also supporting the daily and weekly trending index to reach the next target area around 23 000 until mid February when both monthly and quarterly cycles meet. A longer and deeper correction may follow afterwards.

As suggested in the previous post, relative to BETXT, the BETFI Index managed to break out of both daily (chart below) and weekly (chart above) underperformance trends and started overperforming the market which also support the march of the index to the next target.

The BETFI Index Christmas Rally

2011-11-13T23:32:00.001+02:00

In the context of a global equity markets rebound discussed in a previous post, the Romanian BETFI Index is poised to trend higher until at least end of the year. The critical 25 000 points support(discussed in the last post exploring the BETFI Index) gave way shattering any bullish development and starting a long downtrend that may have ended in the beginning of October.

We notice in the weekly chart above the end of the weekly downtrend around 16K at the 161.8% extension of the previous rally (roughly 20K to 27K). If the downtrend is broken next week, the index could target the 20 500 - 21 500 area until end of the year and perhaps 23 000 later on.

The daily chart below paints a bullish picture showing a 5-wave downtrend move ending around 15 500 with an October test (the 5th wave) of the August selling climax (3rd wave, notice the spike in volumes) and a broken downtrend line accompanied by increasing volume. The uptrending index could target the 20 500 - 21 500 area (previous support, SMA200 and 50% retracement of the downtrend) until end of the year.

Relative to BETXT Index, the BETFI Index is still underperforming on both weekly (above) and daily (below) charts but with good chances to break the daily underperformance trend and perhaps weekly one later on.

Dow Jones World Stock Index Downtrend Correction

2011-10-16T22:18:00.001+03:00

As discussed here and here, The Dow Jones World Index moved lower retracing most of the rise from May 2010 to May 2011, as noticed in the weekly chart above.

The downtrend had an impulsive 5-wave structure (see the daily chart below) which may have ended in the beginning of October setting up an a-b-c correction which can run until perhaps end of November or early December. When this rebound is over, the longer term downtrend could resume.

Markets Price to Moving Average Snapshot

2011-10-16T19:59:00.001+03:00

Most global stock market indices enter medium term green setting up an intermediate term rebound in a still bearish long term trend.

Markets Price to Moving Average Snapshot

2011-09-18T13:52:00.001+03:00

Generalized short term rebounds with most indexes below medium and long term moving averages.

Market Trends Drivers: Fear, Hope and Greed

2011-09-17T23:43:00.001+03:00

Where are we, now? Perhaps in-between denial and fear..?!

Silver's Moving

2011-08-21T19:41:00.003+03:00

Silver has started moving within a rising channel since July, after a two-month correction.

The 61.8% Fib retracement of the May - July correction (around 43) is now challenged and if broken opens the way for a test of the May highs (around 50) and perhaps for new highs later on.

US Philly FED Survey in Recession Area

2011-08-21T19:06:00.002+03:00

..two months after the US Philly FED Survey Slowdown Warning.

CRB Index Touching Support

2011-08-15T21:57:00.003+03:00

As discussed in a previous post in the beginning of May, the commodity CRB Index started a correction following three failed tests at the 61.8% Fibonacci retracement of the 2008 - 2009 plunge. The target of the correction was the 320 area which has been met recently as can be noticed in the updated daily chart above. The index strongly bounced from the 320 area right on the monthly cycle.

The updated weekly chart below shows that 300 - 320 could prove strong support due to the monthly rising uptrend line (now just above 300) connecting the 2009 and 2010 lows. Any break below 300 could send the index to 250 or even lower, while holding above 300 and turning higher could set the stage for a new test of the April - May 370 area. Trading wise, aggressive traders could go long due to the good risk/reward at this point. However, we should be aware that both daily and weekly charts are still in downtrends.

30-year Low in US University of Michigan Consumer Confidence

2011-08-15T16:20:00.002+03:00

..a reaction to the last two weeks markets volatility that may send US GDP growth in recession area.

US Treasury Bond Yields Leading World Equity Markets Lower

2011-08-07T23:24:00.005+03:00

As noted here, here and here, the US 10-year treasury bond yield trends are leading the trends in other asset classes. Last week we had a good example of how US bonds are "leading" the equity markets around the world.

The 2.90 US 10-year Treasury bond yield support level, well discussed in the mentioned posts, eventually gave way and started the plunge on Friday July 29th, as noticed in the updated chart below:

On Monday August 1st, German DAX dropped through key support (6-month uptrend line and 200 SMA), see chart below:

Tuesday August 2nd was the day when key support levels were broken in many equity markets including the US S&P500 Index (levels discussed here, see updated chart below),

the Romanian BETXT Index (levels discussed here, see updated chart below),

and the Dow Jones World Stock Index (levels discussed here, see updated chart below).

US Macro Downturn Charts

2011-08-07T15:40:00.002+03:00

Markets Price to Moving Average Snapshot

2011-08-07T15:38:00.003+03:00

The s ummer rally ended in a red sea.

EURRON Range-Trading Time

2011-07-10T21:36:00.004+03:00

The EURRON reversal anticipated in a previous post happened as discussed, reaching each of the mentioned targets (4.15 and 4.19 - see the updated chart above) and then breaking higher in an impulsive move that took the rate to the 61.8% Fib retracement area around 4.23 and spiking towards the rarefied area bordered by 78.6% retracement around 4.2750.

The 4.23 - 4.275 area is a strong resistance that could propel the rate back to 4.33 if breached. A break below 4.19 area could send the rate back to 4.15 and towards this year lows around 4.06. The 4.19 - 4.23 in-between area is no man's land and a potential boring range. However, as long as EURRON stays below 4.23, the odds tilt towards resumption of downtrend by breaking below 4.19 later on.

US Monthly Change in Nonfarm Payrolls Approaches Zero

2011-07-10T20:42:00.002+03:00

US 10-year Treasury Yield Halts on Target

2011-07-03T20:45:00.003+03:00

This post title is the answer to a preceding post discussing the importance of the 2.90 level (see updated weekly and daily charts above and below).

The US 10-year treasury note yield halted on targeted mentioned level in June and reversed signaling the potential start of the summer rally in equities, commodities and the continuation of the dollar weakness.

Potential target for reversal is the weekly falling 200SMA and the downtrend line in the 3.40 - 3.50 area.

See the full gallery on Posterous

Markets Price to Moving Average Snapshot

2011-07-03T20:23:00.003+03:00

Compare this table with the last week one. Notice the change in color on all three time frames and the switch of all US treasury notes yields from red to green signaling the potential start of the summer rally.

US Consumer Confidence Lower

2011-07-03T20:19:00.001+03:00

Dow Jones World Stock Index - Healthy Correction or More Downside to Come?

2011-06-26T14:44:00.006+03:00

As we notice in the weekly chart above, after touching the 178.6% Fibo extension of 2010 spring correction, the Dow Jones World Stock Index correction reached a critical long term support found at the confluence of 2010 - 2011 uptrend, Fibo fan line and the flat weekly 50EMA. A break below mentioned support could quickly target the next two Fibo fan lines support, otherwise the long term uptrend could resume and the world stock markets may challenge the May 2011 highs.

Zooming in through a daily chart below we notice a potential Head&Shoulders formation with a down sloping neck line that was broken, then tested thus the index being now theoretically prepared to drop to at least its H&S projected target that coincides with the second Fibo fan line support. A return above the neck line negates the bearish daily chart view.

If the drop towards the H&S projected target unfolds in the coming days and weeks, the world stock markets will remain under downward pressure.

Markets Price to Moving Average Snapshot

2011-06-25T17:50:00.002+03:00

German ZEW Survey Lowest since January 2009

2011-06-25T16:31:00.003+03:00

The ZEW Indicator of Economic Sentiment is ascertained monthly. Up to 350 financial experts take part in the survey. The indicator reflects the difference between the share of analysts that are optimistic and the share of analysts that are pessimistic for the expected economic development in Germany in six months.

S&P500 Top Formation

2011-06-19T21:19:00.003+03:00

As noticed in a previous post in the beginning of May, "Sell in May and go away!" was a good advice once again. The updated weekly chart above shows the weekly breakout above 1350 was fake and reversed the week before starting a deeper correction and perhaps forming a long term top. We notice the index broke the uptrend coming from the 666 March 2009 lows. The break occurred on the logarithmic scale chart only but usually it precedes the break of the arithmetic scale chart (see below), as well.

The index halted around 1370 where are 76.4% (38.2% x 2) retracement of the fall from the 2007 highs to 2009 lows and 161.8% extension of summer 2010 correction. The internal symmetry is indicative of a potential long term top set in May 2011 which could trigger a deep correction targeting at least the 1000 area (2010 lows and 38.2% retracement of the 2007 - 2009 plunge), thus retracing half the 2009 - 2011 recovery until sometime in 2012.

The updated daily chart below shows the potential 5-wave count which may be completed and the correction that ensued by breaking the uptrend (coming from August 2010) around mid May, as discussed in the mentioned previous post. The correction has touched the targeted rising SMA200 and approached this year lows and the bottom of the corrective wave 4 located around 1250. A break down through this area is extremely bearish and seals a long term top at this May's top around 1370. Nevertheless, the index may stage a rebound preceding the important 1250 area break down while a return above 1350 would suggest the top is not yet in place.

US Philly FED Survey Slowdown Warning

2011-06-19T18:22:00.004+03:00

Markets Price to Moving Average Snapshot

2011-06-19T16:01:00.003+03:00

All stock market indexes are below SMA50 (medium term) and the majority is already below SMA200 (long term) except for the ones from Germany, Indonesia, Israel, Romania, Russia, South Korea and US.

US 10-year Treasury Yield Halts on Target?

2011-06-13T23:45:00.003+03:00

As noted in a previous post, the US 10-year treasury yield started a downtrend that signaled turning points for the other asset classes (commodities, equities and the US dollar). In the updated weekly chart above and daily chart below we can see the two discussed targets, 3.05 - 3.10 area and 2.90 were sequentially reached around monthly cycle lines.

The consistent break of the 2.90 area this month could send the US 10-year treasury yield towards last year's low around 2.35 and could also keep pressure on equities and commodities while potentially pushing the dollar higher during the summer and year end. If the 2.90 area is holding this month then we could see summer relief rallies in equities and commodities and continuing dollar weakness at least until autumn or literally "fall" :).

We Are Traders - A tribute to all those trading the markets

2011-06-08T23:46:00.001+03:00

EURUSD Resumed Uptrend

2011-06-05T22:17:00.002+03:00

The updated EURUSD daily chart above shows that the long term support area discussed in a previous post built the base for the renewed uptrend which set off right on the monthly cycle time. The next target should be the previous highs just below 1.50 and perhaps higher later on.

Nevertheless, we should check if the broken uptrend (now around 1.47) poses strong resistance. Failing to break higher could turn extremely bearish.

Markets Price to Moving Average Snapshot

2011-06-05T21:57:00.002+03:00

US Macro Trends - Turning point?

2011-06-05T21:50:00.002+03:00

TEL Breakout

2011-06-05T21:39:00.002+03:00

TEL finally managed to break through the strong resistance around 22 with high volume and on cycle time, as noticed in the daily chart above. The obvious short term targets are roughly 23.5 (already touched) and 25 but the medium term target could be the area around 27.

In the daily chart below we have TEL relative to BETXT. We notice the breakout above SMA200 and through the downtrend around a double Fibonacci time zone area which sent TEL strongly overperforming the market.

Markets Price to Moving Average Snapshot

2011-05-28T22:40:00.002+03:00

World Stock Markets Indexes Dancing on the Edge of Abyss

2011-05-22T21:35:00.003+03:00

The Chinese Shanghai Index

MSCI Emerging Markets Index

The German DAX Index

The US S&P500 Index

The Shanghai Index - Make It or Break It?

2011-05-22T21:25:00.004+03:00

The Shanghai Index continued to moved higher, as discussed in a previous post in January, reversing in April from the falling dowtrend (as shown in the weekly chart above). The index is approaching the apex of a huge rising wedge which usually have bearish resolution when broken down.

Nevertheless, as we notice in both the weekly chart (above) and the daily chart (below), the index is testing a daily uptrend line (just above the weekly wedge uptrend line), the rising daily SMA200, the flat weekly EMA50 and the last Fibonacci retracement (which held in the previous two circled instances). The area formed by the mentioned elements around 2800 is key support which if broken, can have strong bearish consequences. Make it or break it?

Key Global Events - The Week Behind and Ahead On May 15th

2011-05-16T16:55:00.008+03:00

Big Picture succinct summation of week’s events (ending on May 13th):

Positives:

1) UoM confidence jumps back to average level of the year as one year inflation expectations dip to 4.4% from 4.6%

2) 5 month low in mortgage rates leads to 9% jump in refi’s and 6.7% rise in purchase application

3) Germany and France lead solid Q1 GDP growth for Euro zone but sustainability in question

4) Hong Kong economy grew 11.2% annualized in Q1

5) China again raises reserve requirements after 5.3% CPI print and greater than expected loan growth.

Negatives:

1) CPI, PPI continue to rise with CPI now back above 3% y/o/y

2) Inflation takes bite out of April retail sales as sales ex gasoline rise just .2%

3) Initial Jobless Claims above 400k for a 5th straight week and 4 week average now at the highest since Nov

4) Weak US$, energy prices and higher Chinese labor costs lead to 11.1% y/o/y gain in Import Prices

5) NFIB small business optimism index falls to lowest since Sept with most growth categories lower and price index higher

6) BoE’s King says UK in stagflationary environment, is it headed here?

7) Political infighting amongst the EU, IMF, ECB and individual country members continue to drag out the fate of the Greek’s.

Goldman lists the key economic events in the upcoming week, which will likely be dominated by news of the surreal IMF scandal that has taken the financial world by storm.

Last week’s flow of cyclical data was broadly encouraging. However, cyclical currencies traded weak against the USD. In addition, the Greece situation stood at the forefront of market attention. This week will offer us more on that front with the Ecofin/Eurogroup meetings on Monday. Other than that, we have important cyclical data this week with the Philly Fed on Thursday standing out as the key forward-looking indicator. It will also be interesting to watch trends in initial claims, which has been volatile recently. Finally, Fed Chairman Dudley’s speech will be interesting to follow, together with FOMC minutes.

Monday May 16th:

Ecofin/Eurogroup meeting will be key to watch in terms of ongoing developments in the management of the Greek crisis.

US May Empire Manufacturing Survey. The week starts with one of the interesting regional manufacturing surveys in the US. Consensus expects a moderate decline to 20 from 21.7.

Hungary Monetary Policy Meeting. We do not expect rate hikes from the NBH, in line with consensus.

Also interesting: US May Home Builders Survey May, TIC DATA, Poland March Current Account.

Tuesday May 17th:

UK April CPI. We will watch UK inflation data closely in order to assess the likelihood of tighter financial conditions in the UK going forward. For the next CPI release, GS expects a print of about 0.7%, slightly below consensus of 0.8%.

US Housing Starts. We expect housing starts in April to have increased by 5% mom vs consensus expectations of 3.8%.

US IP: We expect IP to have increased by 0.5%mom in April, close to consensus expectations of 0.4% mom.

Also interesting: Australia RBA minutes, South Africa April CPI, Apr & March Retail Sales.

Wednesday May 18th:

UK MPC Minutes: Watching the ongoing developments in the balance of opinions within the MPC and the assessments on growth and inflation dynamics will be key in order to assess the balance of risks to rates, which will also be significant for price action in the GBP as well.

US FOMC Minutes will likely provide more insight into the balance of opinions within the FOMC.

Fed Speakers: St Louis Fed Pres Bullard

Also interesting: Japan Tankan, Malaysia CPI Apr, GDP Q1

Thursday May 19th:

US Philadelphia Fed. Philly Fed is among the key leading indicators ahead of the ISM and a significant input to our own Global Leading Indicators. We expect a rebound from last month’s low print of 18.5. This month will likely come in at 22, mildly above consensus of 20.

US Jobless claims

Fed Speakers: NY Fed Pres Dudley

Also interesting: US April Existing Home Sales

Sources:

Succinct Summation of Week’s Events (5.13.11)
A Look At Key Global Events In The Upcoming Week

BETXT Index Correction

2011-05-14T11:34:00.003+03:00

The last year high target (around 620) was not reached as expected and discussed in a previous post, the index reversing at the less known 78.6% Fibo level as shown in the weekly chart above and daily chart below.

During last week the index was also affected by dividend adjustments that sealed the break of the daily EMA50 support. Though the negative influence of the dividends may be seen artificial to the index and stocks in general, the collective market memory is not adjusted for dividends and is more likely to react to the same technical levels existing before adjustments. The same rationale is also applied to index composition changes (e.g. recent FP inclusion).

The downtrend should be halted in the important 500 points area (round number, rising daily SMA200 and 1-year recovery uptrend line + rising weekly EMA50) unless long term monthly uptrend is broken and reversed.

Quantitative versus Fundamental Investing

2011-05-11T21:03:00.004+03:00

Source: Quantitative versus Fundamental Value

Potential EURRON Reversal

2011-05-09T22:25:00.002+03:00

The correction in EURRON downtrend mentioned in a previous post proved to be the potentially 4th corrective wave of the 5-wave downtrend. The pair reversed from just shy of targeted 4.15 and melted down to marginally new lows towards last year targeted lows (around 4.06) in a clear divergence with the rising price oscillator (MACD). This set-up resolution was the short term reversal and the potential end of the 5th wave (not a harmonic one, though) which is usually followed by an a-b-c correction higher towards 4.15 and perhaps 4.19 later on.

CRB Index Long Due Correction

2011-05-09T21:59:00.004+03:00

The long and strong weekly uptrend in CRB Index mentioned in a previous post could not push past the magic 61.8% Fib retracement (turned unbreakable resistance diligently tested by the index during the last two months) and broke down with fireworks.

Nevertheless, we see still little damage to the weekly chart above despite the long red candle down. The steep uptrend just broken is usually replaced by a less steep one and the ongoing correction could be an opportunity to buy.

Looking at a daily chart below we see a 3-push higher bearish pattern with potential correction target around 320 which may be a good risk/reward level to go long.

US 10-year Treasury Yield Bearish Fakeout

2011-05-09T21:31:00.003+03:00

In a previous post I highlighted the bullish potential breakout of the US 10-year Yield Note but it turned out to be a false breakout just two days after. It was an early warning sign of the commodities, dollar and equities markets last week's corrections due to the break in the cemented inter-market (asset classes) relationships: bonds down (yields up), dollar down, commodities and equities up.

In the weekly chart above we notice new lows for the yields piercing the last Fibo fan level and potentially heading even lower towards 2.9 if this area gives in. In the daily picture below we see a monthly three push higher which usually has a bearish resolution. A clear downtrend is in the process with potential target 3.05 - 3.10 area (SMA200, 50% retracement and 21-day cycle line). Below we have the mentioned 2.9 (last Fibo retracement and previous congestion area).

EURUSD Uptrend Correction

2011-05-09T21:08:00.004+03:00

As noted in a previous post, EURUSD moved higher and reversed just shy of the 1.5 target last week. The correction was harsh but the uptrend is intact as shown in the updated weekly chart above.

In the daily chart below we notice that EURUSD broke the uptrend correcting right on the cyclic time. Nevertheless, the area in the 1.40 -1.43 should prove strong support for the longer term uptrend and a base for a new leg higher to challenge the recent highs. A break below 1.40 is bearish medium term.

Key Global Events - The Week Behind and Ahead On May 8th

2011-05-09T01:31:00.004+03:00

Ritholtz's succinct summation of week's events (ending on May 6th):

Positives:

1) US April payrolls rock as private sector leads way, Canadian jobs report rock even more

2) Both retail comps and vehicle sales in March exceed expectations in the face of continued cost of living pressure

3) ISM mfr'g falls a touch but is better than estimated

4) For most companies and consumers, commodity prices break lower, $ bounces after Trichet comments and another week closer to the end of QE2

5) Bin Laden dead

Negatives:

1) Household survey says jobs fell for 1st time since Nov '10, unemployment rate rises to 9% as a result. I know adds confusion to payroll report

2) Slowing global growth as another key reason for commodity break as India, Malaysia, Philippines and Vietnam all raise interest rates, copper breaks slightly below 200 day moving average, Sensex index down 3.2% on the week, Shanghai index down 1.6%

3) China state sector weighted mfr'g PMI 1 pt below expectations

4) ISM services index falls sharply to the weakest since Aug '10 at 52.8

5) Initial Jobless Claims above 400k for a 4th straight week

Key events in the upcoming week, from Goldman Sachs

The week begins with the China – US Strategic and Economic Dialogue (Monday and Tuesday), which will be held in Washington, DC, and will no doubt once again include discussion of the pace of appreciation of CNY against US$. The week also brings a slew of China data, including the trade balance, where consensus expects a small surplus (far below the historical average surplus), and CPI inflation for April, which we see at 5.1% yoy, slightly below consensus. The week ends with the US CPI, where we expect another unfriendly CPI report, with headline CPI rising by 0.39% mom in April, essentially in line with consensus.

Monday May 9th

China – U.S. Strategic and Economic Dialogue (Monday and Tuesday) These meetings will be held in Washington, DC, and will no doubt include discussion of the pace of CNY appreciation against US$.

Taiwan Trade Balance (Apr) According to the latest trends from export orders, we have seen some front-loading of export demand, likely due to the uncertainties over supply chain disruptions in March. April data will allow us to better gauge the extent of this front-loading.

Mexico INPC Inflation (Apr) We expect headline to come in at 3.33% yoy in April, up from 3.04% yoy in March. This is essentially in line with consensus, which is looking for a rise to 3.32% yoy.

Tuesday May 10th

China Trade Balance (Apr) We expect April export growth to moderate to 30.0% yoy, down from 35.8% yoy in March. This is a touch above consensus (29.5% yoy). We expect import growth to rise to 28.0% yoy, up from 27.3% yoy previously. Consensus here expects growth of 28.9% yoy. Consensus expects a trade surplus of $3.2 bn in April, up from $0.1 bn in March. This is still far below the historical average of around $20-25 bn.

Wednesday May 11th

China CPI, IP & FAI (Apr) We expect CPI inflation to fall to 5.1% yoy, down from 5.4% yoy in March. This is below consensus, which is looking for a reading of 5.2% yoy. Our forecast for IP is 15.0% yoy, up from 14.8% yoy in March and above consensus of 14.6% yoy. We are in line with consensus on fixed asset growth, expecting FAI to grow 24.9% yoy, down from 25.0% yoy in March.

Bank of England Inflation Report reflecting the weakness of Q1 GDP data and a 20% rise in Sterling oil prices since the February meeting, projected growth in 2011 is likely to be revised lower and inflation is likely to be revised higher. In the past two years, Governor King has often struck a more dovish tone at the press conference than is reflected in the subsequent MPC Minutes (released one week later).

Poland Central Bank Meeting We are looking for a hike of 25 bps to 4.25%. Consensus expects the base rate to remain unchanged at 4.00%.

United States Trade Balance (Mar) Consensus is looking for a trade deficit of -$47.0 bn, slightly wider than the -$45.8 bn in March. We look for a wider trade deficit of -$48.0 bn, due to higher nominal imports of petroleum products. The trade report could result in revisions to Q1 GDP.

Mexico Q1 Inflation Report

Thursday May 12th

Indonesia Central Bank Meeting Given softer-than-expected inflation in recent months, we expect Bank Indonesia to pause again in May, following pauses in March and April. This is in line with consensus. We expect the central bank to hike the policy rate by another 50 bps for the remainder of this year, taking the policy rate to 7.25% by end-2011 (from the current level of 6.75%).

South Africa Central Bank Meeting We are in line with consensus and expect the policy rate to remain unchanged at 5.50%.

Norway Central Bank Meeting In line with consensus, we expect a 25 bps hike to 2.25%.

United States Initial Claims (May 7) Consensus expects initial claims to come in at 428k, down from the elevated 474k reading the previous week.

United States Retail Sales (Apr) We forecast that retail sales increased by 1.0% mom in April, or 0.7% excluding motor vehicles. Both figures should benefit from the increase in gasoline prices during the month, which raises the nominal value of sales at filing stations. April chain-store sales results were encouraging, but need to be treated with caution due to shifts in the timing of Easter. Consensus sees growth of 0.6% mom for headline retail sales, following growth of 0.4% mom in March. Retail sales excluding autos are expected to grow 0.6% mom, following growth of 0.8% mom in March.

Friday May 13th

Korea Central Bank Meeting We expect the Monetary Policy Committee to raise the policy rate by 25 bps, with a continued hawkish bias. Consensus also expects a 25 bps hike.

Euro Zone GDP (Q1) We forecast growth of 0.7% qoq, above consensus, which is looking for a reading of 0.6% yoy. Growth in Q4 was 0.3% qoq.

Poland CPI (Apr) We expect inflation to come in at 4.4% yoy in April, below consensus of 4.5% yoy, following a reading of 4.3% yoy in March.

United States CPI (Apr) We expect another unfriendly CPI report this month. Specifically, we forecast that the all-items CPI rose by 0.39% mom in April, essentially in line with consensus (0.4% mom), and that core increased by 0.19% mom, also in line with consensus. Our forecast for a rise in the core (from a gain of 0.14% in March) primarily reflects higher apparel and medical care inflation.

Sources:

Succinct Summation of Week’s Events (5/6/11)

Key Events In The Upcoming Week: US And China Trade Balance And Inflation Data

Silver Story

2011-05-08T13:42:00.003+03:00

"Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways"

– Bob Farrell

Source: Things That Make You Go Hmmm

Long Term US Dollar Index Annotated Chart

2011-05-06T00:29:00.001+03:00

Source: Annotated US Dollar Index by David Singer

Key Global Events - The Week Behind and Ahead On May 1st

2011-05-02T02:05:00.003+03:00

Ritholtz’s succinct summation of short week’s events:

Positives:

1) Great tech earnings buoy stocks
2) Existing home sales 100k annualized above est
3) Housing starts and permits bounce, good for construction
4) Purchase component in MBA data rises 10% to 19 week high
5) Euro zone mfr’g and services index remain solid
6) Sweden, Thailand and Brazil raise rates and China raises reserve requirements again
7) German PPI rises a robust 6.2% y/o/y but below estimates

Negatives:

1) The balance sheet of the United States of America gets a pop across the head
2) US$ value continues to erode, gold and silver roar higher
3) Philly Fed mfr’g moderates as rising prices create pressure
4) Initial Jobless Claims above 400k for a 2nd straight week
5) NAHB home builder sentiment fall 1 pt to still pathetic 16
6) Housing starts and permits bounce, we don’t need so many new homes
7) Canada CPI up 3.3% y/o/y, well above estimates of 2.8% and compares with a 1% benchmark rate
8) Yields in Greece, Portugal and Ireland go parabolic

Source: Succinct Summation of Week's Events

S&P500 Recovery Continues

2011-05-02T01:45:00.002+03:00

The S&P500 weekly chart above depicts a bullish picture bouncing to and from Fib retracements and extensions. Last week the 1350 resistance was broken on the third attempt heading towards 1440 area and possibly even higher towards the 2007 all time high.

Nevertheless, the daily picture below shows that the recent leg higher could also be the 5th and last one targeting the 1400 - 1440 resistance area until around mid May. A longer and deeper correction could follow afterwards. "Sell in May and go away!" could be a good advice once again!

Niels Jensen’s Confessions of an Investor

2011-04-20T14:47:00.008+03:00

The problems with Modern Portfolio Theory (MPT)

“..I would like to spend a moment on MPT, as I believe it is important to understand the shortcomings of the prevailing approach to investment and risk management. [..] Let’s take a closer look at three of the most important assumptions behind MPT (there are many more assumptions behind Modern Portfolio Theory. Wikipedia is a good place to start should you wish to read more about it):

1. Risk-free investments exist and every rational investor invests at least some of his savings in such assets, which pay a risk-free rate of return.

2. Returns are independently and identically-distributed random variables (returns are trendless and follow a normal distribution, in plain English).

3. Investors can establish objective and accurate forecasts of future returns by observing historical return patterns. Strictly speaking, this assumption was relaxed by Fischer Black in 1972 when he demonstrated that MPT doesn’t require the presence of a risk-free asset; an asset with a beta of zero to the market would suffice.

Well, if these assumptions are meant to stand the test of time, then good old Markowitz (the father of MPT) is in trouble. Truth be told, none of the three stand up to closer scrutiny. The concept of risk-free investing no longer exists, post 2008. Banks are giant hedge funds which cannot be trusted and even government bonds look dicey in today’s world. Secondly, returns are clearly not random. If you have any doubts, just look at how the trend-following managed futures funds make their money. Thirdly, from 26 years of investment experience, I can testify to the fact that historical returns provide little or no guidance as to the direction of future returns.

A new approach is required.

So what does all of this mean? First of all it means that universities and business schools all over the world should clear up their acts. Two generations of so-called financial experts have been indoctrinated to believe that MPT is how you should approach the management of investments and risk whereas, in reality, nothing could be further from the truth. It also means that investors should kick some old habits and re-think how they do their portfolio construction. Specifically, it means that: [..]

i. the notion of the “market portfolio” being an appropriate performance benchmark should be discarded;

ii. there is in reality no meaningful distinction between strategic and tactical asset allocation – the difference is illusory;

iii. investors should once and for all reject the notion that there is an optimal portfolio for each investor from which he or she should only deviate “tactically” in the shorter run;

iv. market timing deserves more credit than it is given;

v. MPT is a straitjacket preventing investors from rotating between different classes of risky assets (with vastly different risk/return profiles) as market conditions change.

Please note that this does not imply that asset allocation is irrelevant. Far from it. However, it does mean that a bespoke approach to asset allocation, where individual circumstances drive portfolio construction, is likely to be superior to a more generic approach based on a strategic core and a tactical overlay.

[..]

A solution to the problem

Here is what I would do in terms of applying his thinking into a modern day investment approach:

1. Do what you do best. Some investors are made for short-term trading. Others are much more suited for long-term investing (like me). Don’t be shy to utilize whatever edge you may have. MPT suggests that markets are efficient. Nothing could be further from the truth. If you have spent your entire career in the medical device industry, the chances are that you understand this industry better than most. Use it when managing your own assets. Insider trading is illegal; utilizing a life time of experience is not.

2. Take advantage of mean reversion. Mean reversion is one of the most powerful mechanisms in the world of investments. At the highest of levels, wealth has a long term ‘equilibrium’ value of about 3.5 times GDP. As recently as 2007, wealth was well above the long term equilibrium value and signaled overvaluation in many asset classes. But be careful with the timing aspect of mean reversion. The fact that an asset class is over - or undervalued relative to its long term average tells you nothing in terms of when the trend will reverse. A good rule of thumb is to buy into asset classes when they are at least a couple of standard deviations below their mean value.

3. Be cognizant of herding. We are all guilty of keeping at least one eye on other investors, and we are certainly guilty of letting it influence our own investment decisions. This is how investment trends become investment bubbles and fortunes are wiped out. Herding is relatively easy to spot despite the fact that former Fed chairman Alan Greenspan argued otherwise – probably because it was a convenient argument at the time. But herding is also subject to the greater fool theory. You can make a lot of money investing in fundamentally unsound assets, as long as you can find a greater fool to whom you can sell it at a higher price. It works fine but only to a point.

4. Think outside-the-box. All those millions of baby boomers all over the western world who will retire in the next 10-15 years have been told by the MPT-trained financial advisers that they need to lighten up on equities and fill their portfolios with bonds, because they need the income to live on in old age. STOP! Who says that bonds can’t be riskier investments than equities? When circumstances change, you should change your investment approach accordingly and not rely on historical norms. Given the state of fiscal affairs in Europe and North America, it does not seem unreasonable to suggest that circumstances have indeed changed.

5. Bring non-correlated asset classes into the frame. One should consider having a core allocation to non-correlated assets. Traditionally, many non-correlated asset classes have not met the liquidity terms required by the majority of investors [..], but there are exceptions, the most obvious one being managed futures. The asset class proved its worth in 2008 with managed futures funds typically up in the range of 20-30% that year.

6. Take advantage of investor constraints and biases. The classic, but by no means only, example is the outsized impact a downgrade to below investment grade (i.e. a credit rating below BBB) may have on corporate bonds, as some institutional investors are not permitted to own high yield bonds and are thus forced to sell regardless of price when the downgrade takes place.”

Source: Birthdays and Investment Risk.

Inflation Explained

2011-04-19T00:23:00.002+03:00

Key Global Events - The Week Behind and Ahead On April 17th

2011-04-18T23:38:00.005+03:00

Ritholtz's succinct summation of week's events (04-15-2011)

Positives:
1) Retail Sales in March were good, notwithstanding rising gasoline and food prices
2) NY mfr'g survey in April rises to 1 yr high but with rising prices paid and received
3) Apr UoM confidence bounces 2 pts from lowest level since Nov '09 with still elevated 1 yr inflation expectations
4) China reports stronger than expected Q1 GDP, retail sales and IP but also higher than forecasted CPI and PPI
5) Singapore tightens policy to fend off higher import prices

Negatives:
1) US CPI rises 2.7% y/o/y, most since Dec '09 and Import Prices rise 9.7% y/o/y
2) Initial Jobless Claims rise back above 400k for the 1st time since early March
3) Higher than expected trade deficit and lower than expected rise in business inventories send Q1 GDP forecasts down to around 2%
4) NFIB small business optimism index falls to 5 month low as price pressures rise, and plans to hire, expectations of better economy and better sales fall. Cap ex component did rise
5) Soft start to Q1 earnings season as seen with AA, JPM, GOOG and BAC
6) Yields in Greece, Portugal, Ireland and Spain all rise as clock ticks on inevitable timing of Greek debt restructuring. Greek 2 yr yield up 225 bps on the week and CDS goes to record high
7) Gold at record high, direct indictment of Fed policy

Goldman summarizes the past week, and forecast the next 4 business days (Friday is a holiday)

What Matters in FX This Week : Business Surveys in Europe and Turkish Central Bank Meeting

From a macro perspective, last week's data offered a slightly more positive mix of growth vs. inflation. CPI data in the US showed a more moderate increase in core inflation, while consumer confidence in the US came in slightly better than expected and long-term inflation expectations eased.

In terms of our own market views, we re-emphasized our Dollar bearish bias in the FX Monthly but also highlighted that limited further upside in European rates together with slightly more volatile risk sentiment could temporarily hurt our long EUR/US $ exposure. Our commodities strategy team turned more neutral in the near term for oil, and as a result, we closed our long recommendation in Canadian equities.

Week Ahead

The week ahead is reasonably light on data. The European PMIs and the German IFO will be the key releases to watch. So far, these forward-looking growth indicators have remained steady at remarkably high levels, and it will be interesting to watch whether it extends for another month.

As a result of our more neutral stance on oil, we are watching our RUB trade closely. If the CBR remains hawkish then there is room for RUB to continue to perform even if oil prices correct lower in the near term. Therefore, watching next week's investment data is key for our view on the economy and the central bank's next move.

Next week's central bank meeting in Turkey is unlikely to provide a negative backdrop for our long EURTRY recommendation as we do not expect CBRT to raise reserve requirements again.

Monday 18 April

RBA Board Meeting Minutes.

Hungary Monetary Policy Meeting: We expect the National Bank of Hungary to keep rates unchanged at 6%.
Also of interest: Poland wages, US homebuilders' survey, Singapore trade balance. Fed speeches by Bullard, Fischer & Lockhart.

Tuesday 19 April

Eurozone Flash PMIs (Apr): We expect the manufacturing PMI to print at 57.2, very close to last month's print (of 57.5). Similarly for the services PMI we expect 57, which would be slightly below last month's 57.2 print.

Russia Investment Statistics (Mar): The strength of the rebound in domestic demand will be important to watch in order to assess the odds for further monetary tightening in the near term in Russia. Our long RUB basket recommendation is predicated on a hawkish CBR stance.

US Housing Starts (Mar): We expect a 5% increase in starts vs consensus forecasts of 9.6%.

Also of interest: Canada CPI (Mar), Japan trade balance (Mar), Hungary Wages (Feb), Poland IP (Mar).

Wednesday 20 April

Thailand Central Bank Meeting: We expect a 25bp hike of the policy rate to 2.75%, on the back of rising inflationary pressures.

Taiwan Export Orders (Mar): The March 11 earthquake in Japan is likely to distort export numbers across the region.
Sweden MPC Meeting: We expect the Riksbank to hike rates by 25bps to 1.75%. This is in line with consensus expectations.

UK MPC Meeting Minutes: It would be a surprise if any committee member had switched votes between March and April.

US Existing Home Sales (Mar): We forecast a decline of 6% mom vs a 2.5%mom increase that consensus expects.

Also of interest: South Africa Retail Sales, Mexico INPC inflation.

Thursday 21 April

Germany IFO (Apr): We will be watching whether the IFO continues to point to substantial strength in the German manufacturing sector. The components will also be of interest in terms of assessing the course for business expectations and current trends in the retail and wholesale sectors.

Turkey Monetary Policy Meeting: We expect the Bank to leave rates unchanged at 6.25%. We do not expect the bank to hike reserve requirements (RRR).

Japanese Portfolio Flow data for the week ending April 15. The last data set showed large Japanese selling of foreign debt. In comparison to previous years, we think it is related to fiscal year end. If the trend continues, it may signal repatriation of foreign assets in response to last month's earthquake.

US Philly Fed (Apr): We expect the Philly Fed indicator to decline to 33 from 43.4, consensus expects a decline to 36 only.

Also of interest: US initial claims, Canada retail sales.

Sources:

Succinct Summation of Week’s Events (4.15.11)

Global Key Economic Event And Bond Issuance Summary For The Upcoming Week

TLV Potential Breakout

2011-04-17T21:39:00.002+03:00

We notice the increased volume supporting the TLV price (daily chart above) pushing into the 50% retracement of the March - December 2010 downtrend after escaping the Fibo fan. The price seems ready to spring through 1.53 resistance targeting at least the obvious 61.8% Fib retracement in the 1.60 - 1.65 area until beginning of May.

Relative to BETXT (daily chart below), TLV is also showing signs of potential overperformance. After a strong underperformance, the stock moved mainly in line with the index since October last year shaping a potential reversal Head & Shoulders formation which may trigger TLV relative strength during the next cycle ending in June.

The BETFI Index Correction

2011-04-17T18:02:00.003+03:00

As noted in a previous post, BETFI pulled back from the strong resistance found in the 27 000 - 28 000 points area where wave 3 of the uptrend (started in December 2010) may have ended. An a-b-c 4th wave correction started towards the 25 000 point support area which has almost been touched before reversing higher.

As long as the 25 000 point support area holds, the chances are the 5th impulsive wave starts running towards the 30 000 or even 34 000 area until end of May (see the chart above).

On the daily relative strength chart of BETFI against BETXT (chart below) we also notice a correction that reached support in the EMAs and broken downtrend area from where the BETFI may start overperforming again into the next time cycle.

Nevertheless, on the weekly relative strength chart (above) we notice BETFI is struggling to overperform while still being below the downtrend. We shall have to check if it breaks higher or continue lower during the next cycle.

George Soros Bloomberg Interview

2011-04-15T21:58:00.004+03:00

On stimulus vs. austerity and whether U.S. debt impacts the world:

"If you have a growing economy, you can tolerate a higher level of debt. And if you have too much debt and you have a recession, you get into what they called debt check. This is the big issue. "

"I am afraid it is overshadowed by political considerations. You have a financial crisis in Europe. There is the pressure of Spain and Portugal and so on. But debt is a different problem. Those countries are part of the European bloc and they are not in a position to issue their own currency. We can issue our own currency. In fact, the dollar is quite strong. It is really a matter of political judgment. That is where you have different opinions."

"There is very a strong push to tighten the budget as a way to reduce government spending. It's a resistance to any kind of tax increase and tightening, particularly the budget of the states. The [U.S.] states cannot issue their own currency. They are in a similar situation to Spain and Portugal. There is a danger that by pushing this too far, you could abort the very fragile economic recovery that you are currently enjoying and push the economy once again into a slowdown or a recession."

"I rather fear these political forces will push it into a recession. In my opinion, the country could actually absorb some more debt in order to get the economy going."

On the ECB vs. the Fed – who is doing it right?:

"Two different directives govern the European Central bank and the U.S. Federal Reserve. In the case of Europe, it's a one-sided directive. Their only job is to prevent inflation, and in the case of the U.S., it is more balanced, to maintain employment and financial stability."

On whether the U.S. dollar is still a safe asset:

"There's a big question is whether the U.S. dollar should be the main reserve currency and in fact it no longer is because it maybe accounts for two-thirds of the monetary reserves. The euro is an alternative and there's a lot of diversification into other currencies and even more into commodities. Not only gold, but actually oil is now an asset class for investors. That has put some upward pressure on the commodities."

On whether the sovereign debt crisis has diminished euro's chances of becoming a reserve currency:

"The euro is under a cloud, but that is exactly because there are some inflationary pressures from the price of commodities, particularly now oil and also food prices have risen. That is what has induced the European Central Bank to raise interest rates at a time which is, in my opinion, quite inappropriate…It is not appropriate in current circumstances when you have a number of countries that are suffering from too much debt and high interest rates that they have to pay."

On China's economy:

"China has really stimulated its economy full force very successfully and now it is trying to rein in the rate of growth, and is exercising very strong constraints on the banking system. But because of that constraint, and because of the big demand for money, a shadow banking system has arisen and is growing very rapidly. So while the big banks under direct central control are in fact refusing to lend, there is a shadow banking system that is growing out of control. There is a real danger there of wage price inflation because prices have gone up, particularly real estate prices have gone up because there was a real estate boom."

"Therefore, wage demands have risen, and we now have 20%, 30% wage increases. The Chinese government has made a mistake not allowing its currency to appreciate, which would have controlled the price of inflation. Instead of that, we now have this wage pressure, which is a little bit out of their control."

On the Chinese economic approach and whether they did something right:

"[The Chinese] were the major beneficiaries of globalization. They were the big winners in the financial crash because their economy was largely isolated because they have capital controls on their currency. They have a two-tiered currency system, whereas the rest of the world allows free movement for capital, and you had a runaway expansion of credit and leverage which then resulted in the financial crash, and China was largely immune. So, they benefited tremendously."

"Their system, which really stands in contrast to the international system, international capitalism with free movement of capital, and then there is a system where the state controls the economy. That system actually has performed significantly better than the international system. So now it is beginning to be imitated by others, but I think it is a tremendous mistake, because that was just one particular set of circumstances when it worked better. They had an advantage because they were the only ones that were controlling capital flows. So as a result, they not only control their own currency, they effectively controlled the world currency system. Now other countries, defensively, are beginning to follow them. For instance, Brazil just doubled the surcharge on capital inflows. That is not good for Brazil, and it is not good for the global economy."

Source: Soros - ECB Rate Hike “Inappropriate” in Debt Crisis

US Housing Market Prices Blow Off Chart

2011-04-13T16:04:00.003+03:00

Typical market climax happening across decades..

Source: Case Shiller 100 Year Chart (2011 Update)

EURUSD Bullish Cycle Magic

2011-04-11T01:46:00.002+03:00

The weekly chart above shows the EURUSD breakout higher through the downtrend challenging the 61.8% Fib level into the next 21-week cycle potentially targeting 1.50 - 1.515 area or even higher until August 2011.

Below we see the daily chart of the EURUSD breakout pushing higher when the 21-day cycle ticks.

CRB Index Marching Higher

2011-04-11T01:43:00.002+03:00

As shown in the weekly chart above and the daily chart below, the CRB Index is making new highs pushing into the 61.8% Fib resistance which can be overcome this following week opening the way to the 2008 highs. Notice the strong and long still running weekly uptrend.

US 10-year Treasury Yield Pushing Higher

2011-04-11T01:11:00.003+03:00

We notice the bounce in bond yield form the 20 and 50 EMAs back above the 200 SMA in the weekly chart above.

The daily chart below shows the break above 61.8% Fib level up trending towards latest February high. Both charts are bullish and could target the 4% strong resistance area.

MSCI Emerging Markets Index is Bullish Again

2011-04-03T22:09:00.003+03:00

In the weekly chart (above) and daily chart (below) we notice the breakout to the upside of a 5-month long range (after the top in November discussed here) with high chances of touching 1250 area (Fib extensions and previous 2008 high) until end of April.

In the longer term the new weekly cycle can drive the index further up to challenge the all time highs around 1350 until August 2011.

The chart below is the relative strength of S&P500 Index (proxy for developed markets) against MSCI Emerging Markets Index. As noted in a previous post, the developed markets enjoyed an overperforming trend that seems to have just finished (see the trend break below).

The probability is now tilted to the return of the secular emerging markets overperformance.

ARAX Breakout

2011-04-03T22:01:00.002+03:00

Nice breakout in ARAX after managing to escape a range and a Fib resistance.

Short term the move is first targeting 0.18 and then 2010 highs around 0.20 during the new time cycle ending around Easter.

BETFI Index Enter Strong Resistance Area

2011-04-03T21:50:00.002+03:00

The BETFI Index entered in the 27 000 - 28 000 targeted area just before end of March as noted in a previous post. The index is trending up but the strong Fibonacci and chart resistance around the 28 000 level can trigger a pullback (see updated chart above).

The break of the 28 000 resistance is targeting 30 000 and then 34 000 later on while a pullback towards 25 000 should be bought with stop loss levels just below.

EURRON Downtrend Correction

2011-04-03T21:36:00.002+03:00

As noted here and here, EURRON almost touched the targeted 2010 lows (around 4.06) after dropping through the critical 4.19 - 4.20 support area. The short term downtrend ended and a correction is in place with 4.15 and then 4.19 - 4.20 potential targets.

Nevertheless, EURRON is still bearish and a reversal could happen above the 4.19 - 4.20 area (now resistance). We may see a new band of trading between 4.10 and 4.20.

The BETXT Index Bullish Potential

2011-03-27T21:59:00.002+03:00

The BETXT Index has just stepped into a new cycle with a strong bullish potential. As noticed in the weekly chart above, the first stop in the uptrend could be the April 2010 highs and the weekly SMA around 620 and then the 750 area towards the cycle end in August.

In the daily chart above we notice the index is marching towards the April 2010 highs around 620 after entering with a trending mood in a new cycle (ending mid-April until when the target might be touched) and shattering the 61.8% final Fib retracement. With all three moving averages heading higher the picture is bullish while the rising 50-days EMA playing the stop loss level.

Wondering if the recent FP inclusion in the index is distorting the picture? Time will tell but we have no surprises so far and I would bet the targets (and stop losses) stay the same without any needed adjustments.

Why You Should be Freaked Out About the Stock Market..in US

2011-03-26T18:34:00.002+02:00

"This is a chart of the US monetary base. In simple terms, it charts how much money the Fed has pumped into the system (at least that it admits). So it's a kind of visual of the Fed hitting the PANIC button: when the monetary base explodes higher, the Fed is FREAKING out.

You'll note that during the Financial Crisis the Fed didn't do much until the autumn of 2008 when it pumped nearly $1 trillion into the system. Think about that, the Fed didn't go nuts pumping money until the stuff REALLY hit the fan.

You'll also note that there's only one other time when the monetary base went absolutely vertical: TODAY.

Indeed, the Fed has pumped nearly $500 billion into the system since the start of 2011. Don't even try to tell me this is QE 2. If it was then the monetary base should have spiked in late 2010, NOT in 2011.

No, this is the Fed FREAKING OUT about the financial system again. And it's a freak out on par with 2008.

So if you think that all is well "behind the scenes" you're in for a rude surprise. Something BIG is going down and it's NOT good.

And rest assured, by the time the mainstream media announces what it is, it will already be in full swing."

Source: Gr aham Summers via Zero Hedge

Second Biggest Weekly VIX Drop In History

2011-03-26T18:09:00.002+02:00

"With the VIX closing the day and the week at approximately a 17.70 level, it marks a 40% decline from its closing print recorded on March 16, when it hit 29.4, just as the Nikkei was about to flash crash to the high 7,000 range. This represents the 2nd largest closing drop in the history of the volatility index, beaten only by the weekly VIX drop from November 4, 2008 (when the VIX dropped from 80 to 47.7). And stunningly, on an intraday basis, when the VIX dropped to the day's lows of just over 17, it briefly represented the biggest weekly drop in the VIX ever."

Source: Zero Hedge - Second Biggest Weekly VIX Drop In History

On Pattern Recognition

2011-03-25T22:24:00.002+02:00

"The price pattern reminds you that every movement of importance is but a repetition of similar price movements, that just as soon as you can familiarize yourself with the actions of the past, you will be able to anticipate and act correctly and profitably upon forthcoming movements."

Jesse Livermore

TGN: The End of Its Relative Strength

2011-03-25T13:27:00.004+02:00

As noticed in the daily relative strength chart (against BETXT) above, TGN overperformance broke its uptrends following a year long of consistently beating the index.

The short term trend is clearly down and the technical damage is increasing the probability of a longer term underperformance cycle.

Cash-basis, TGN's longer term first support is in the 225 - 235 area (as noticed in the weekly chart above). Holding above this area keeps the probability of the stock tilted towards the long side.

Using a P&F chart (above) we identify the 215 level under which the uptrend starting in 2009 is probably reversed.

AZO Spikes

2011-03-23T01:28:00.003+02:00

The spiky AZO is bouncing higher pushing into Fib resistance (the most important Fibonacci level being the 61.8% retracement of the 2008 huge 88% drop).

The 0.7 round level should prove hard to pass though we cannot rule out a trip towards 0.75 (due to the spiky nature of this stock) until around mid April cycle wise.

James Montier's Seven Immutable Laws of Investing

2011-03-17T02:17:00.004+02:00

1. Always insist on a margin of safety

2. This time is never different

3. Be patient and wait for the fat pitch

4. Be contrarian

5. Risk is the permanent loss of capital, never a number

6. Be leery of leverage

7. Never invest in something you don't understand

Source: GMO

The Tsunami on the Japanese Nikkei 225 Index

2011-03-15T18:09:00.005+02:00

A first sign of the drop had already been given on the day before the earthquake when a new local low and a breach of the 50-day EMA signaled potential weakness ahead (see daily chart above).

The 9 degrees magnitude temblor and the subsequent powerful earthquakes (see table above) followed by the tsunami and the nuclear accident threat developed into a black swan that sent the index towards the crisis lows (see weekly chart below) in the biggest two-day drop since 1987.

The uptrend in the Nikkei Index is technically damaged and the damage is spreading worldwide in a panic wave which may have locked the highs of the main developed markets indexes for some time to come.

Cicada-Like Synchronized Traders Have Fewer Losses

2011-03-14T23:10:00.005+02:00

"Traders who align their transactions much like cicadas synchronize their chirping make a profit more of the time, according to a study of market behaviors.

The more often traders acted within the same one-second window, the more money they made at the end of the day, according to a study in the Proceedings of the National Academy of Sciences. Traders make a profit 60 percent of the time when they're in sync, more than the overall average of 55 percent profitable trades, said study author Brian Uzzi, who is the co-director of the Northwestern Institute in Complex Systems at Northwestern University in Evanston.

Synchronized behavior benefits individuals and groups in a variety of animals, Uzzi said. Cicadas who chirp at the same time are less likely to be spotted by a predator, according to previous research. The cicada chorus, works like the trading patterns, arising spontaneously through local interactions, without a central leadership.

"If you go to animal behavior, synchronicity usually occurs when animals are faced by complex information problems, and any individual in a school of fish or flock of birds is overwhelmed," Uzzi, who also teaches at the Kellogg School of Management, said today in a telephone interview. "So it gave me the hunch that where humans are likely to be overwhelmed by the pace or volume of information, we might be able to find synchronicity."

Not 'Groupthink'

Unlike groupthink, synchronicity arises from multiple people solving the same problem separately. Groupthink, which is comparable to herding in animals, happens when traders see others trading and join. Syncing doesn't always lead to herding, and when it does, it usually takes place before the herd behavior, Uzzi said.

Uzzi's study followed 66 traders over a year and a half. The traders are talking to a few people at once, ignoring what's going on in the larger market, he said. Multiple traders are looking at different parts of the market and when they begin to process masses of information, such as IMs, RSS feeds, and news from various sources, they begin to act in concert. Trade after the sync, and the "solution" will be priced into the stock, Uzzi said.

The trades and the cicada chirps are examples of how complex systems emerge out of simple interactions. Although neither the cicadas nor the traders are centrally organized, their behavior isn't random. Trading houses may wish to design software that notices moments of sync, enabling traders to wager more money during that time, Uzzi said."

This article reminds me of the website motto: "So, what about the stock market? The universe of numbers that represents the global economy. Millions of hands at work, billions of minds. A vast network, screaming with life. An organism. A natural organism."

Source: Cicada-Like Synchronized Traders Have Fewer Losses, Study Shows

Paul Desmond's Market Musings

2011-03-14T00:40:00.003+02:00

"On a fundamental basis, the fundamental factors are always different in every bull market or every bear market. But the technical factors are based upon something much simpler. They are based on human psychology. Investors tend to go from periods of extreme depression at market bottoms, to extreme elation at market tops. And there are always a different set of circumstances that help boost that change in psychology. But the range of human psychology remains pretty much the same. And we simply move from panic at market bottoms, fear at market bottoms, and finally we move to greed at market tops. And that is the limit of what technical analysis is really doing — measuring the psychology of investors regardless of events that may have inspired their bullishness or bearishness."

"You cannot time the market off of fundamental information, because the stock market operates off of expectations as to what is going to happen six months or nine months down the road. In other words, investors don't buy stocks because of what they know today. They buy because of what they think they are going to know six months or nine months from now. So the market is always ahead of the economy. And as a result, if you are trying to look at fundamental information, you are always too late."

"..if we were in the fall foliage season prior to winter, what we would tend to see in the trees up north, we'd start to see leaves dropping off the tree one at a time. And the stock market is very, very similar, that as you get into the latter stages of a bull market, individual stocks tend to peak out and begin to drop into their own individual bear markets, while there are still a lot of stocks continuing to advance. As the bull market becomes more and more mature, a greater number of individual stocks tend to fall off the trees, so to speak, and drift to the ground, whereas the investment community is not watching the leaves, they are watching the indexes."

"You have to be willing to buy in the face of bad news. By the same token, at market tops, the news is dominated by good news, and that is the time to watch out because if the news can't get any better then all it can do is get worse."

"..the important things for investors to realize is that market declines start out with complacency as being the most dominant emotion at that time. And the means that most people are half asleep, and they are just not paying attention. They don't think the markets can go down, so they don't think there is any need be watchful, but that is exactly when an investor needs to be particularly alert. The last stages of a decline, the very last couple of months of a market decline are the most intense, because that is when the panic sets in, and that is when it is absolutely essential that you are already out of the market. You surely don't want to go through that final stage."

Source: Q&A: Paul Desmond of Lowry's Reports

The Zurich Axioms

2011-03-09T14:56:00.003+02:00

On Risk:
- Worry is not a sickness but a sign of health – if you are not worried, you are not risking enough.
- Always play for meaningful stakes – if an amount is so small that its loss won’t make any significant difference, then it isn’t likely to bring any significant gains either.
- Resist the allure of diversification.

On Greed:
- Always take your profit too soon.
- Decide in advance what gain you want from a venture, and when you get it, get out.

On Hope:
- When the ship starts sinking, don’t pray. Jump.
- Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain.

On Forecasts:
- Human behaviour cannot be predicted. Distrust anyone who claims to know the future, however dimly.

On Patterns:
- Chaos is not dangerous until it starts to look orderly.
- Beware the historian’s trap – it is based on the age-old but entirely unwarranted belief that the orderly repetition of history allows for accurate forecasting in certain situations.
- Beware the chartist’s illusion – it is characteristic of human minds to perceive links of cause and effect where none exist.
- Beware the gambler’s fallacy – there’s no such thing as “Today’s my lucky day” or “I’m hot tonight”.

On Mobility:
- Avoid putting down roots. They impede motion.
- Do not become trapped in a souring venture because of sentiments like loyalty and nostalgia.
- Never hesitate to abandon a venture if something more attractive comes into view.

On Intuition:
- A hunch can be trusted if it can be explained.
- Never confuse a hunch with a hope.

On the Occult:
- If astrology worked, all astrologers would be rich.
- A superstition need not be exorcised. It can be enjoyed, provided it is kept in its place.

On Optimism & Pessimism:
- Optimism means expecting the best, but confidence mean knowing how you will handle the worst. Never make a move if you are merely optimistic.

On Consensus:
- Disregard the majority opinion. It is probably wrong.
- Never follow speculative fads. Often, the best time to buy something is when nobody else wants it.

On Stubbornness:
- If it doesn’t pay off the first time, forget it.
- Never try to save a bad investment by “averaging down”.

On Planning:
- Long-range plans engender the dangerous belief that the future is under control. It is important never to take your own long-range plans or other people’s seriously. In essence these axioms point to the benefit of having an investment strategy and sticking to it, regardless of what other investors say or do. If you don’t have an investment strategy, you could do worse than adopt these principles. However, don’t be afraid to add or subtract ones according to what works for you.

Source: Max Gunther's Zurich Axioms via TBP

EURRON Update

2011-03-05T01:04:00.003+02:00

As noted in a previous post, EURRON was heading towards the 4.19 - 4.20 area which was touched before bouncing higher (see the updated chart above).

A clear drop through the mentioned area increases the probability of a return to the 2010 lows (around 4.06) or even lower.

BETFI Index Resumes Uptrend

2011-02-28T23:43:00.004+02:00

After touching the target around 25 000 points (discussed in a previous post), BETFI Index corrected in an "abc" fashion and sprang sharply with increasing volumes into the new monthly cycle breaking the downtrend and probably heading towards new 2011 highs.

The first obvious target of this impulsive 3rd wave move is the previous high around 25 000 points but the uptrend probably targets the 27 000 - 28 000 points area until the end of March.

Secret of Film Success

2011-02-27T13:29:00.001+02:00

S&P500 Uptrend in Danger

2011-02-24T20:55:00.002+02:00

The S&P500 Index pushed straight higher towards the mentioned (in a previous post) 1350 points area after exceeding the 1260 level at the start of the year. The expected ABC correction never happened and the wave count (as discussed in the mentioned previous post) was wrong, the index going higher and reversing just shy of 1350 points.

S&P500 Index is now testing the multi-month uptrend line and if broken the odds tilt to a longer correction towards 1260 and then 1220 - 1230 area. Otherwise the 1350 area can be challenged again and even exceeded towards 1400.

Lower lows in EURRON

2011-02-24T00:32:00.001+02:00

The EURRON stopped at 4.33 and coudn't go higher to the obvious target around 4.35 as noted in a previous post giving a first sign that if it cannot go higher then it will go lower.

The rate fell in steps towards the longer term uptrend support area between the 61.8% (4.19) and 50% (4.23) Fibonacci retracement levels of the low - high 2010 range. Therefore the area around 4.19 - 4.20 should prove an important support and potential downtrend target during the next month. If broken, it opens the way to stronger RON appreciation.

DAX halt

2011-02-23T23:29:00.003+02:00

The German DAX Index moved higher and pushed through the 7200 target (mentioned in a previous post) as high as twice the range width from where it broke out in October 2010.

The index retreated from around 7400 but the price uptrend is still intact (though mechanical uptrend has stopped giving an important warning sign).

We should pay attention how price is behaving around previous 7200 target level, the uptrend and the rising 50-day EMA just below. Unless these areas are broken, the uptrend might have more to go.

The Cocktail Party Market Indicator

2011-02-22T00:12:00.002+02:00

“If the professional economists can’t predict economies and professional forecasters can’t predict markets, then what chance does the amateur investor have? You know the answer already, which brings me to my own ‘cocktail party’ theory of market forecasting, developed over the years of standing in the middle of living rooms, near punch bowls, listing to what the nearest ten people said about stocks.

In the first stage of an upward market – one that has been down awhile and that nobody expects to rise again – people aren’t talking about stocks. In fact, if they lumber up to ask me what I do for a living, and I answer, ‘I manage an equity mutual fund,’ they nod politely and wander away. If they don’t wander away, then they quickly change the subject to the Celtics game, the upcoming elections, or the weather. Soon they are talking to a nearby dentist about plaque. When ten people would rather talk to a dentist about plaque than to the manager of an equity mutual fund about stocks, it’s likely the market is about to turn up.

In stage two, after I’ve confessed what I do for a living, the new acquaintances linger a bit longer – perhaps long enough to tell me how risky the stock market is – before they move over to talk to the dentist. The cocktail party talk is still more about plaque than about stocks. The market is up 15 percent from stage one, but few are paying attention.

In stage three, with the market up 30 percent from stage one, a crowd of interested parties ignores the dentist and circles around me all evening. A succession of enthusiastic individuals takes me aside to ask what stocks they should buy. Even the dentist is asking me what stocks he should buy. Everybody at the party has put money into one issue or another, and they’re all discussing what’s happened.

In stage four, once again they’re crowded around me – but this time it’s to tell me what stocks I should buy. Even the dentist has three or four tips, and in the next few days I look up his recommendations in the newspaper and they’ve all gone up. When the neighbors tell me what to buy, and then I wish I had taken their advice, it’s a sure sign that the market has reached a top and is due for a tumble.”

-Peter Lynch, One Up On Wall Street

Source: The Big Picture

Soros on market forecasting

2011-02-13T17:13:00.003+02:00

"The financial markets generally are unpredictable. So that one has to have different scenarios. The idea that you can actually predict what's going to happen contradicts my way of looking at the market."

George Soros

The Shanghai Index Prepares For The Year of the Rabbit

2011-01-31T23:59:00.000+02:00

The breakout in the Chinese Shanghai Index mentioned in a previous post proved to be false, the index quickly returning with a bearish engulfing candle below the broken downtrend and the 61.8% Fibonacci retracement (see updated weekly chart above).

So far price stopped just shy of the same 61.8% Fibonacci retracement of July – November 2010 uptrend also filling a previous gap. After the Chinese New Year break in the beginning of February we shall have to check if the year of the Rabbit pushes the index to the July lows or back to the November highs. Unless support area around 2650 gives in, the odds of the continuation are slightly skewed to an upside move.

EURCHF - Where to?

2011-01-25T21:56:00.002+02:00

In a previous post in October I mentioned a potential breakout to the upside in EURCHF. It happened to the indicated target just shy of 1.39 as can be noticed in the updated chart above.

Nevertheless, the rally was short lived and the price reverted back to its bearish longer term trend underlined in the daily chart below. We notice a clear downtrend channel falsely pierced to the upside by the mentioned rally.

Following around one year of range trading in 2009 between 1.50 and 1.53 (see the weekly chart below), the 1.5 level publicly defended by the Swiss National Bank (SNB) was breached in December 2009. Since then all the Euro "enemies" took refuge in the Swiss currency thus carving a clear downtrend in EURCHF.

The weekly chart below shows us an even longer term downtrend started in 2007. The image is still pretty bearish with price below falling 20&50 EMAs and 200 SMA.

The only elements that call for caution are the system weekly end-of-trend signal and Fibonacci extensions that may keep a floor in the 1.24 - 1.27 area where a base may be built for a potential surge beyond the upper daily channel line and 20&50 weekly EMAs. Until that happens the odds are still to the downside.

Is VIX ready to jump?

2011-01-25T00:36:00.003+02:00

After thrice testing strong support around 15.4, The Volatility Index (VIX) (informally called "the fear index") rebounded through a downtrend line and the falling 20 & 50 EMA (see the daily chart above) heading higher towards a longer term downtrend line.

If the latter downtrend line is broken, VIX could swiftly move higher towards the 200 SMA and latest highs around 24 or higher during the next 34-day time cycle. This potential development in the Volatility Index is bearish for equity markets.

GoldNomics - Cash or Gold Bullion?

2011-01-24T00:10:00.003+02:00

Source: GoldNomics - Cash or Gold Bullion?

Risk aversion creeps in via small caps

2011-01-21T22:33:00.003+02:00

In the daily chart above we have the relative strength of the large caps (S&P500 Index) against the small caps (Russell 2000 Index). We notice the recent break of the downtrend line that kept the small caps performing better than the large caps since August 2010. The weakness of the small caps could be a sign of risk aversion creeping into the US equity markets.

In the bigger picture the small caps over performance and the S&P500 keep their positive correlation as seen in the weekly updated chart below (published in a previous post) which is a healthy sign for the ongoing bull market. At the bottom of the weekly chart below we have the weekly inverted chart discussed above, i.e. the relative strength of the small caps (Russell 2000 Index) against the large caps (S&P500 Index).

Total Market Cycle

2011-01-20T21:39:00.003+02:00

Sources: The Big Picture and Alpha Scanner

AUDUSD Potential Bearish Route

2011-01-19T13:38:00.003+02:00

Following the analysis from a previous post, we notice AUDUSD stopped on the uptrend where the "c" corrective wave finished and returned to the upside (see the updated daily chart above). The 161.8% Fibonacci extension of the April - May 2010 decline stood again as strong resistance and price retreated breaking the uptrend line.

AUDUSD is now testing the broken uptrend (better underlined in the daily chart on closes below) and failing to move higher could open the downside towards 0.94 support. We also notice a potential broadening formation which is usually bearish am may take the price even lower.

Alternatively, a return to the twice tested resistance could take AUDUSD higher in a new impulsive (probably 3rd) wave up of a new 5 wave move coming after the mentioned "a-b-c" correction.

The GOLDen Uptrend Breather

2011-01-18T16:14:00.003+02:00

Gold continued its long term bullish uptrend magically touching the 1400 target during November - December 2010 as noted before in an October 2009 post and October 2010 post.

Above we have the updated weekly chart and we notice the confluence of Fibonacci time and extension around 1400 which proves hard to break for now and was already tested three times.

A potential correction may start towards 1250 (a previous resistance which turns support) and may last until June-July 2011 when the next 34-week time cycle returns. The cycle start was drawn from the 2006 high but theory says that it's better to draw cycles starting from a significant low. Therefore in the chart below another 34-week cycle is drawn starting from the latest significant low registered in 2008 and thus we note the same June-July 2011 next potential inflection period.

The next target after the following likely correction is 1600 which may be touched in January – March 2012. Nevertheless, we should be aware that the uptrend may accelerate and become exponential at some point and even higher highs may be registered in a shorter cycle than the regular 34-week cycle.

In the daily chart below we notice the triple resistance test in the Fibonacci confluence zone, the 34-day cycle inflection area, the break of the 50-day EMA and the latest uptrend. All this evidence supports a potential correction towards 1250 – 1300 area.

The Seven Sins of Fund Management

2011-01-17T22:18:00.002+02:00

“This collection of notes aims to explore some of the more obvious behavioral weaknesses inherent in the ‘average’ investment process. Seven sins (common mistakes) were identified:

1. The first was placing forecasting at the very heart of the investment process. An enormous amount of evidence suggests that investors are generally hopeless at forecasting. So using forecasts as an integral part of the investment process is like tying one hand behind your back before you start.

2. Secondly, investors seem to be obsessed with information. Instead of focusing on a few important factors (such as valuations and earnings quality), many investors spend countless hours trying to become experts about almost everything. The evidence suggests that in general more information just makes us increasingly over-confident rather than better at making decisions.

3. Thirdly, the insistence of spending hours meeting company managements strikes us as bizarre from a psychological standpoint. We aren’t good at looking for information that will prove us to be wrong. So most of the time, these meetings are likely to be mutual love-ins. Our ability to spot deception is also very poor, so we won’t even spot who is lying.

4. Fourthly, many investors spend their time trying to ‘beat the gun’ as Keynes put it. Effectively, everyone thinks they can get in at the bottom and out at the top. However, this seems to be remarkably hubristic.

5. Fifthly, many investors seem to end up trying to perform on very short time horizons and overtrade as a consequence. The average holding period for a stock on the NYSE is 11 months [in 2005, nowadays is less, according to the same author]! This has nothing to do with investment; it is speculation, pure and simple.

6. Penultimately, we all appear to be hardwired to accept stories. However, stories can be very misleading. Investors would be better served by looking at the facts, rather than getting sucked into a great (but often hollow) tale.

7. And finally, many of the decisions taken by investors are the result of group interaction. Unfortunately groups are far more a behavioral panacea. In general, they amplify rather than alleviate the problems of decision making.

Each of these sins seems to be a largely self imposed handicap when it comes to trying to outperform. Identifying the psychological flaws in the ‘average’ investment process is an important first step in trying to design a superior version that might just be more robust to behavioral biases.”

Source:

James Montier – Seven Sins of Fund Management

Why we love predictions

2011-01-16T22:43:00.002+02:00

"Behavioral scientists have discovered that at the core of the dislike human beings have for randomness, is an overwhelming desire to believe we are in control. "Knowing" that the S&P 500 will close at 1,450 next year gives investors that feeling of control, even though it gets us into the stock market after it has doubled."

Below you have some healthy advice about the "The Folly of Forecasting":

"Whenever you find yourself reading (or watching) someone who tells you where a stock or the markets are going, consider these factors:

- No one truly knows what tomorrow will bring. Nobody. Any and all forecasts are, at best, educated guesses.

- All prognostications are instantly stale, subject to further revision. Conditions change, new data are released, events unfold. Yesterday's prediction can be undone by tomorrow's press release.

- In order to "become right," some investors will stand by their predictions despite a stock or the market going the opposite way, hoping to be proven correct. Ned Davis called this the curse of "being right rather than making money."

Sources:

Allan Roth - 5 Financial Predictions for 2011

Barry Ritholtz - The Folly of Forecasting

Chart of the Day - BRD GSG breaking out in full motion

2011-01-14T20:05:00.002+02:00

BRD Group Societe Generale broke out from a long consolidation period (see weekly chart above) when trading just below the 20 and 50 weeks EMAs and pushed higher through a long term downtrend probably heading at least towards previous 2010 highs and the falling 200-week SMA (around 16) in the next several weeks (time cycle wise). Strong Fibonacci confluence zones resistance and potential targets are approximately the 16-17 and 19-20 areas.

In the daily chart below we notice the strong breakout which occurred after spending 5 months of a rectangle consolidation between the 23.6% and 38.2% Fib retracements of the April - June 2010 downtrend pushing through the 12.5 resistance and the 200-day SMA. Price retraced already 76.4% of the mentioned last year downtrend and may pull back but exceeding the 61.8% retracement encourages a test of the April 2010 high around 16 sooner rather than later.

The Romanian BETFI Index Turns Bullish

2011-01-13T13:53:00.003+02:00

The January Romanian BETFI Index direction has taken shape as discussed in a previous post. We notice in the updated daily chart above that the index turned bullish exceeding the 22500 - 23000 resistance area where BETFI could have reversed.

The downtrend wave count has changed a little (registering a 5th wave similar to the 1st) and the correction to the downtrend proved to be impulsive also starting to overlap the 1st previous downtrend wave which means we actually have a reversal that could lead the index to the 25000 - 26000 points area.

In the daily chart below we see the increasing volume breakout through 23000, the 50%-61.8% retracement lines and the falling 200-day simple moving average which could easily propel the BETFI Index towards the previous high and upper channel line highlighted in the chart above around 26000 points.

The bullish case is also supported by the 20 EMA which is about to cross the 50 EMA, by the monthly time cycles which still show room for advances and by the index starting uptrending with increasing directional volatility.

The Baltic Dry Index Update

2011-01-12T13:14:00.003+02:00

As noted in a previous post, The Baltic Dry Index continued south breaking the uptrend and exiting a big consolidating triangle (see updated daily chart above). Nevertheless, this movement seems more to be related to massive over-building of new bulk transport ships (despite the strong uptrend in the CRB Index) and less to the slowdown in the world economic recovery, as Bloomberg noted in an article:

“At a time when analysts anticipate record profits for the biggest mining companies and a third year of gains in commodity prices, shipping lines carrying raw materials are set for the lowest freight rates since 2002.

Leasing costs for capesizes, 1,000-foot-long ships hauling iron ore and coal, will drop 34 percent to average $22,000 a day this year, according to the median in a Bloomberg survey of eight fund managers and analysts. The last time that happened, China’s economy, the biggest consumer of the minerals used in steel and power, was 75 percent smaller and the benchmark Standard & Poor’s GSCI commodity index 67 percent lower.

While Clarkson Plc, the world’s biggest shipbroker, expects seaborne trade in the two cargoes to exceed 2 billion metric tons for the first time this year, the 7 percent increase won’t be enough to eliminate a glut. About 200 capesizes, spanning some 35 miles end-to-end, will leave shipyards this year, expanding the fleet by 18 percent, the Bloomberg survey showed.”

Sources:

The Big Picture - Baltic Index Overwhelemed by New Ships
Bloomberg - Freight Rates Tumbling as 35 Miles of Ships Passes Ore Demand

Chart of the Day - Nikkei Index Breakout

2011-01-11T16:21:00.003+02:00

The Nikkei Index broke out of the 61.8% Fibonacci retracement of the April - August 2010 downtrend (see the weekly chart above) probably targeting the April 2010 highs around 11500 and then the falling 200-day simple moving average and 13000 (the 161.8 Fib extension of mentioned last year correction). The MACD is again positive following the buy signal (triggered last year).

The index uptrend may also be supported by the potential USDJPY bottoming around 80 (noted in a previous post, see updated chart below), a depreciating (or at least consolidating) yen being a good sign for the export-based Japanese economy.

In the daily chart below we notice the breakaway gap that pushed the index through resistance (the 61.8% retracement) potentially towards the 10700 area. We can also try an Elliott wave count which places us in the 3rd impulsive wave of the uptrend started in September 2010.

CRB Index Update

2011-01-10T13:39:00.005+02:00

CRB Index continued its upward trend and reached the potential target (mentioned in a previous post on 13th October 2010) in the 320 - 340 area, registering a high around 335 as noticed in the updated weekly chart above.

In the daily chart below we have a wave count that indicates that the mentioned 335 high may be the top of a last impulsive 5th wave of the bull run started in May 2010. As long as the 335 - 340 area holds as strong resistance, the five wave count is most likely complete and an ABC correction is probably following towards the 295 - 310 area.

US 10-year Yield and S&P500 Index Positive Correlation

2011-01-05T21:22:00.004+02:00

As seen in the weekly chart above, there is a long term positive correlation between the US 10-year yield and the S&P500 index. During January 2007 - April 2010, the correlation went very strong (as high as around 84%). From April to end of December 2010 the correlation dropped to around 22% mostly due to the FED's QE2 expectations that led to a steep drop in yields and a supported equity market.

As noted in the previous post, the US 10-year yield bottomed in November 2010 and may have peaked in December while a correction may follow during the next weeks. If that is the case and assuming the positive correlation still holds and may regain power, we can also expect a drop in the S&P500. Time will tell..

US 10-year Treasury Note Yield Uptrend Correction

2011-01-05T16:43:00.003+02:00

The minimum target of the H&S formation (mentioned in a previous post) was reached and well exceeded on the US 10-year Treasury Note yields pushing up to 73.6% retracement (of the April - October 2010 descent) in a 5 wave fashion. The assumption is that the 5-wave structure is complete with symmetric wave 1 and 3, zig-zag wave 4 and a longer final wave 5.

An ABC correction is more likely to follow with first target 3.10 - 3.15 (cycle-wise potentially in the second week of January 2011) and then around 3.00, though a downfall can go as low as 2.75 without reversing the uptrend started in October 2010. If / When December highs are exceeded, the obvious target is the April 2010 high around 4.00.

Arthur Huprich's List of Investment Rules

2011-01-03T23:30:00.003+02:00

P. Arthur Huprich published a terrific list of rules at year’s end. Other than commandment #1, they are in no particular order:

• Commandment #1: “Thou Shall Not Trade Against the Trend.”

• Portfolios heavy with underperforming stocks rarely outperform the stock market!

• There is nothing new on Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again, mostly due to human nature.

• Sell when you can, not when you have to.

• Bulls make money, bears make money, and “pigs” get slaughtered.

• We can’t control the stock market. The very best we can do is to try to understand what the stock market is trying to tell us.

• Understanding mass psychology is just as important as understanding fundamentals and economics.

• Learn to take losses quickly, don’t expect to be right all the time, and learn from your mistakes.

• Don’t think you can consistently buy at the bottom or sell at the top. This can rarely be consistently done.

• When trading, remain objective. Don’t have a preconceived idea or prejudice. Said another way, “the great names in Trading all have the same trait: An ability to shift on a dime when the shifting time comes.”

• Any dead fish can go with the flow. Yet, it takes a strong fish to swim against the flow. In other words, what seems “hard” at the time is usually, over time, right.

• Even the best looking chart can fall apart for no apparent reason. Thus, never fall in love with a position but instead remain vigilant in managing risk and expectations. Use volume as a confirming guidepost.

• When trading, if a stock doesn’t perform as expected within a short time period, either close it out or tighten your stop-loss point.

• As long as a stock is acting right and the market is “in-gear,” don’t be in a hurry to take a profit on the whole positions. Scale out instead.

• Never let a profitable trade turn into a loss, and never let an initial trading position turn into a long-term one because it is at a loss.

• Don’t buy a stock simply because it has had a big decline from its high and is now a “better value;” wait for the market to recognize “value” first.

• Don’t average trading losses, meaning don’t put “good” money after “bad.” Adding to a losing position will lead to ruin. Ask the Nobel Laureates of Long-Term Capital Management.

• Human emotion is a big enemy of the average investor and trader. Be patient and unemotional. There are periods where traders don’t need to trade.

• Wishful thinking can be detrimental to your financial wealth.

• Don’t make investment or trading decisions based on tips. Tips are something you leave for good service.

• Where there is smoke, there is fire, or there is never just one cockroach: In other words, bad news is usually not a one-time event, more usually follows.

• Realize that a loss in the stock market is part of the investment process. The key is not letting it turn into a big one as this could devastate a portfolio.

• Said another way, “It’s not the ones that you sell that keep going up that matter. It’s the one that you don’t sell that keeps going down that does.”

• Your odds of success improve when you buy stocks when the technical pattern confirms the fundamental opinion.

• As many participants have come to realize from 1999 to 2010, during which the S&P 500 has made no upside progress, you can lose money even in the “best companies” if your timing is wrong. Yet, if the technical pattern dictates, you can make money on a short-term basis even in stocks that have a “mixed” fundamental opinion.

• To the best of your ability, try to keep your priorities in line. Don’t let the “greed factor” that Wall Street can generate outweigh other just as important areas of your life. Balance the physical, mental, spiritual, relational, and financial needs of life.

• Technical analysis is a windsock, not a crystal ball. It is a skill that improves with experience and study. Always be a student, there is always someone smarter than you!

Source: Art Huprich’s Market Truisms and Axioms

Potential S&P500 Route Into The New Year 2011

2010-12-17T15:37:00.003+02:00

The American S&P500 index continued higher after breaking above 1185 noted in a previous post in October and reached the mentioned target in the 1215 - 1220 points area (updated chart above). A zig-zag correction ensued which may be considered a 4th corrective wave of the uptrend started from July 2010 lows.

The 5th impulsive wave has probably started at the beginning of December and may target the 1260 points area which should be reached by the end of December 2010 and beginning of January 2011.

After that a longer ABC correction may start before going higher towards 1350 points area (that will be discussed in another post). The extension of the potential correction below 1170 points area will probably reduce the chances of a long term uptrend continuation and a fall below the 1130 - 1150 points area could trigger the bear market resumption.

Recent Emerging Markets Underperformance

2010-12-10T14:34:00.004+02:00

The chart above is the relative performance of the MSCI Developed World Index against MSCI Emerging Markets Index and below we have the relative performance of the US S&P500 Index against MSCI Emerging Markets Index.

In both charts we notice the recent relative underperformance of the emerging markets starting with the November 2010 MSCI Emerging Markets Index top mentioned in a post at that time.

So far the overperformance of the developed markets that melt up to new highs is poised to continue but this is a counter trend move to the long term underperformance and may not last very long.

The EURUSD Bearish Route

2010-12-09T11:51:00.004+02:00

As noted exactly one month ago in a previous post, EURUSD resumed the downtrend and pushed through the obvious support in the 1.33 - 1.35 area and the medium term uptrend line that could have kept some hope for the bulls (see updated chart above).

After the ABC correction of the first half of the year plunge, the downtrend resumed and as long as the 1.34 - 1.35 resistance area holds, we could see a down push towards the 1.26 - 1.28 area (5th of potential 1st impulsive wave) followed by a correction (2nd corrective) and then a renewed bearishness towards 1.20 in a potential 3rd impulse wave. A break above 1.35 would negate the bearish view and wave count and could send EURUSD back towards November highs in a potential range trading.

PIIGS ? suck! suck! suck!

2010-12-09T10:46:00.002+02:00

Source: Investment Postcards