– The VIX had its steepest and largest 4-day decline in its history with record volume, according to Bloomberg. After setting a new 6-month high in the VIX, it plummeted to a 4-month low. This compression in the VIX resets the VIX Master Cycle with potentially unforeseen consequences.
SPX tests the apex of its Bearish Wedge.
– SPX made an about-face after testing its 40-week moving average at 1392.00 and vaulted to a new high near Cycle Top resistance and a potential Ending Diagonal trendline. There is a risk that the SPX may go nominally higher (1475.00) next week. The bulls may be cheering their reprieve and a new closing high not seen since December 2007. What they are missing is a Broadening Top (Megaphone) formation both in the hourly and daily charts that warn of an imminent sharp and potentially severe reversal. Monday is the first cycle turn date of the year for SPX.
(ZeroHedge) S&P 500 futures lurched in a vol-driven mania above their implicit QE3 highs (stop-run) and yay verily there was much rejoicing as cash S&P 500 reached closing levels not seen since December 2007. The only trouble with all this jubilation - Treasuries rallied all day (so no ‘Great Rotation’), high-yield credit was having none of it, and AAPL positively hated it (though financials had their best week since the stress tests in March).
NDX rallies to the top of its Megaphone formation.
–The NDX reversed direction after making a new weekly low to a new weekly high. This should be a warning of instability and lack of leadership, since AAPL did not participate in the rally. The moving averages have made what is known as a death cross, warning that the NDX may reverse course quickly and decisively. It too has a Cycle Turn due on Monday.
Yet another confirming formation with an even deeper potential target has now appeared, called the (inverted) Cup with Handle Formations (in black). It becomes active beneath 2452.00, the same location as the Broadening Wedge trendline.
The Euro begins its decline.
– This week the Euro tested its 10-week moving average at 129.62 before a slight retracement at the close. The year-end rally in the Euro was due to year-end window dressing by the major European banks whose collateral consists of European sovereign bonds. Now that 2012 is finished, these same banks will likely unload their bonds as the Euro sides down again.
(The Guardian) It’s been a busy day at the market in downtown Volos. Angeliki Ioanitou has sold a decent quantity of olive oil and soap, while her friend Maria has done good business with her fresh pies.
But not a single euro has changed hands – none of the customers on this drizzly Saturday morning has bothered carrying money at all. For many, browsing through the racks of second-hand clothes, electrical appliances and homemade jams, the need to survive means money has been usurped.
The US Dollar tests its 40-week moving average.
– USD rallied to its 40-week moving average at 80.89 before closing above its 10-week moving average at 80.30. Momentum is rising, spelling out danger ahead for equities and commodities. It has a waiting inverted Head & Shoulders neckline at 83.80. The potential right shoulder of the inverted Head & Shoulders appears finished, though it is shorter than the left shoulder. Because this pattern is not apparent in the daily charts, there is very little awareness of it and the ramifications of a powerful new trend in the Dollar.
Gold about to “activate” its Orthodox Broadening Top.
– Gold challenged its (crash) trigger point of its Orthodox Broadening Top at 1625.00, closing between it and its 40-week moving average. The next step in within the Orthodox Broadening Top pattern is that it goes into panic mode. Last week I had mentioned that we could see a decline this week, which we did, but only after a rally into an inversion Trading Cycle high at the 10-week moving average 1t 16,96.79. The reversal in the Euro may have stopped the rally in gold.
(ZeroHedge) And we’re off to the races. Despite, or maybe thanks to, the relentless collapse in paper gold prices, US retail continues to ignore the day to day fluctuations in the stated value of the shiny metal (most of it driven by the BIS’ Benoit Gilson), and instead has learned to take advantage of every drop to BTFD. As the US mint website reports, the very first day of 2013 saw a whopping 50,000 gold ounce sales, and another 7,000 on the second, which is nearly the entire amount sold by the mint in December, and just shy of half in all of January 2012.
Treasuries fail at 40-week support.
– USB violated its 40-week support at 147.64 this week. Its next target may be mid-Cycle supporte at 143.75. The primary pattern is the Ending Diagonals which is usually completely retraced, suggesting a decline below its 31-year trendline and a target near Cycle Bottom support at 115.32. We may be seeing bond investors, alarmed at the Fed minutes (see below) start to front-run the Fed. See the Bruce Krasting article. Bloomberg has buried its head in the sand.
(ZeroHedge) While some were concerned at the Fed’s new quantitative targets as suggesting early tightening, it appears (from the FOMC Minutes) that those fears were somewhat warranted (with most seeing QE ending in 2013):
• *FED SAYS A FEW ON FOMC WANTED QE UNTIL ABOUT THE END OF 2013
• *FED: SEVERAL ON FOMC BACKED QE HALT OR CUT WELL BEFORE 2013 END
• *ALMOST ALL FOMC MEMBERS SAW POTENTIAL QE COSTS AS INCREASING
Crude meets mid-Cycle resistance.
– West Texas Intermediate Crude has made its move inside its Orthodox Broadening Top this week. That spike higher appears to have been stopped near the weekly mid-Cycle resistance at 94.26. The retracement appears to be complete. If so, the panic phase begins next week.
China stocks are back from their New Year holiday.
–Tthe Shanghai index did a yeoman’s job in the only day that its market was open this week. A realistic target for this rally may be weekly mid-Cycle resistance at 2496.07, very near its Fibonacci 50% retracement level at 2505.00. The Cycle Model suggests another week or two of rally, but there are some other crosswinds that may cut the rally short.
The India Nifty shows signs of exhaustion.
The India Nifty is showing signs of exhaustion at its Cycle Wave II high. This is a massive formation that has remained above 4500 for the last 3 years, retracing 82.7% of its declinefrom its 2010 top. The most prominent formation is the Cup with Handle formation, which is now evident. A decline beneath the Cup with Handle formation would be castrophic, since there is virtually no support until it reaches its March 2009 low.
The Bank Index reaches the top of a diagonal formation.
– BKX closed at the upper trendline of an Ending Diagonal formation. It is probable that the rally has ended, since BKX has already thrown-over its Ending Diagonal on the daily chart. This formation calls for a rapid decline to its October 2011 low at 32.56. It may have time to make that decline into its Trading Cycle low due in mid-January.
The extended correction now puts an even more bearish Cup with Handle in play. The uptrend appears to be over in BKX. Now for a nosedive below supports and a downward acceleration into a full-fledged panic.
(ZeroHedge) Bernanke Thrown Under the Bus…Following a discussion of fiscal policy uncertainty and the need to carefully spend what money we have, Liesman jokingly commented to Bullard that it is “Easy for you to say, you have a lot of dollars to spend; you get to print them!” To which the now foot-in-mouth Bullard replied, “Aaahh; indeed we do.” This seems a little different from what Bernanke previously told Congress.
(Bloomberg) Banks Surge
An index of financial companies in the S&P 500 advanced 5.4 percent for the biggest weekly gain since March. Bank of America climbed 6.6 percent to $12.11 and JPMorgan Chase & Co. added 4.9 percent to $45.36.
We end on that note.
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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