— The VIX is in a second stage pullback from Mid-Cycle resistance at 24.35 back to its Head & Shoulders neckline today. It overshot the neckline on the first pullback and the second one is not as deep, but we would not like to see it go beneath short-term support at 20.85, which is just above the neckline. There is a minor pivot this weekend, so it is possible that TPTB will not like to see the VIX make a new high before the weekend. This market is extremely politicized and appears to be the last bastion of perceived strength for “the economy.” However, here is what the real fear index is saying.
— If we keep following the pattern of the triple Orthodox Broadening Top, SPY may linger near the overhead resistance of the trendline for yet another day, but be assured that the trend is still down. Short-term resistance is almost precisely at the neckline at 133.39, so we may use that as a partial stop loss for our short positions, if needed. I say only partial, since the Cyclical measure of the downtrend is Mid-Cycle resistance at 134.75. There is a new Head & Shoulders neckline at 129.55 that, if broken, assure that the downtrend will continue. Wall Street and its minionswill make every attempt not to cross the neckline before the weekend, IMO. Meanwhile, retail investors are fleeing the market.
–UUP appears to have made a Primary Cycle double pivot with a high on May 16 and a low on May 21, exactly 4.3 days apart. It appears to have started a minor wave iii, which suggests that it may break above its neckline at 22.95. Fibonacci targeting agrees with the Head & Shoulders target. It has also launched above Cycle Top resistance at 22.70, which may now be support for the duration of this rally. There may be a retest of support before UUP moves higher.
— I have inserted a weekly chart of FXE to show that it has indeed closed beneath its new Head & Shoulders neckline at 125.75. The probability of a waterfall decline is extraordinarily high. The bounce that started last Thursday was a complete failure, ending in a “double pivot” Trading Cycle within a span of 4.3 days. The next major pivot low may arrive by June 15. The Orthodox Broadening Top agrees with the target for the massive Head & Shoulders at 125.75, which portends a decline to parity.
(ZeroHedge) …In understanding just how bad things are for European banks, it is important to focus on ‘how much loss-absorbing capital there is beneath you in the bank’s liability stack, as this is the capital that will take losses before senior creditors in the event of a bail-in’ which means looking at deposits as well as secured encumbrance. What is very apparent from the pictorial representations of banks’ liability structures is that rather than encumbrance fromcovered bonds/LTRO etc. the bigger issue for encumbrance of senior unsecured investors is the potential threat from depositor ‘runs’.
— TLT made yet another breakout, then retested its Cycle Top support at 122.47. It appears that this powerful thrust is taking no prisoners as it marches parabolically higher. We may have seen the top of wave iii, which exceeded the target for the Head & Shoulders pattern. If this is correct, we may see TLT drop to its trendline and short-term support at 120.74 before moving higher. If the pattern is correct, I expect the wave v thrust of this pattern may terminate on or near June 12 with a probable target of 130.24. Keep in mind that this may be the final high, and it may be all downhill from there.
— GLD bounced again from a major Head & Shoulders neckline yesterday and made a partial retracement that appears to be a truncated wave c. It is difficult to judge just yet, but the correction may be over. What seems to be happening now is that GLD may be setting up for a massive wave iii of (iii) once it falls through the neckline. This gives GLD about three weeks to decline into a Primary Cycle low expecting a bottom in mid-June.
ZeroHedge writes, “…as of minutes ago, the CME just cut margins for Crude (CL) and Gold (GC) by 13% and 10% respectively. At this point we doubt it will do much if anything.” On the contrary, it may stop the rally in its tracks.
— USO crossed beneath the neckline of the larger Head & Shoulders pattern with a new target at 26.50 and appears to have tested it already. This suggests a swift drop to its target in the next three weeks. What appears to be taking place, is that USO is about to enter wave (iii) of 3, which may be stronger than the Head & Shoulders pattern indicates. Fibonacci relationships suggest a decline to 22.00 in wave (iii).
(ZeroHedge) Over the past 2 months two things have happened: chatter of “imminent” war with Iran has died down to barely a whisper, and WTI is now trading 20% lower than 2012 highs. Which means there is far more capacity for a run higher. So putting all that together, does it mean that the prospect of war with Iran is now gone?
— FXI has broken the lower Head & Shoulders neckline with a new, lower target. The initial Head & Shoulders pattern fell short of its target as roughly 33% of these patterns do. However, that statistic may not be a detriment in using the pattern, especially with other models. The Cycles Model suggests that we may see the decline continue through the second week of June, when a Master Cycle low is due. It has some subdividing yet to do between now and its target low date, but the consolidations will likely be compressed into shorter periods.
— INDY met the minimum target of its minor Head & Shoulders pattern yesterday. It is now in a wave ii bounce, preparing to break the massive Head & Shoulders neckline below 19.31. It is due for a Master Cycle low in mid-June. This pattern has become complex, but Head & Shoulders patterns launch wave threes. This pattern may be an interesting one to watch unfold.
XLF may add a little more to its bounce before piercing its Head & Shoulders neckline at 130.70. The Broadening Wedge no longer has the deeper target, but it is good to have a “second opinion” on the extent of the decline. The current decline should take XLF to its November low or possibly to the massive “probable” neckline at the bottom of the chart. It appears now that XLF shares a virtually identical cycle with FXE. Both are expected to reach their respective Master Cycle lows in mid-June.
(ZeroHedge) A good read…JPMorgan’s flacks and apologists have, unintentionally, exposed the fact that their cover story – hedging gone bad – is false. JPMorgan runs the world’s largest gambling operation in financial derivatives. The New York Times reported the key facts, but not the analytics, in an article entitled “Discord at Key JPMorgan Unit is Faulted in Loss.” The analytics suggest that the latest JPMorgan cover story – it was JPMorgan’s “Achilles the heel” (based in the UK) who caused the loss – is misleading.
The volume of searches for the phrase ‘Bank Run’ has just hit an all-time high – higher now than even during the peak of the Lehman Brothers ‘moment’.
Have a good evening!
Anthony M. Cherniawski
The Practical Investor, LLC
P.O. Box 129, Holt, MI 48842
Office: (517) 699.1554
Fax: (517) 699.1558
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