– The VIX closed beneath Mid-Cycle resistance at 24.06 after having a breakout day. The breakout signals that VIX is ready to move considerably higher after its pullback. It has launched into a Primary Cycle, due to top out June 8-11. The alternate view is that this cycle may extend to June 13-14, due to the influence of the Euro.
– My call that the correction in SPY may be over was a correct one. Today it completed a reversal pattern at the neckline of the lesser Orthodox Broadening Top formation. The “Crash Trigger” for the lesser Orthodox Broadening Top is activated and I suspect that it will only be a matter of a day or so to activate the crash Trigger of the larger pattern as well
Focusing on his supply-demand perspective of what drives stock prices and the heavy volume of corporate selling combined with mutual fund outflows that we have been so vociferous about, Charles Biderman of TrimTabs provides color on why, just like in 2010 and 2011, markets sold off in May. Whether you believe it is explicitly the angst-inspiring European malaise, Facebook’s flop, or US macro deterioration and a pending fiscal cliff – the real driver is more shares chasing less cash as he puts it and reflexively the news exaggerates it or stalls it.
–Now here is a pleasant surprise. UUP broke above its Head & Shoulders neckline and found support there. It is hard to judge whether the consolidation is over yet or not, but if the wave count is correct, the pause at the neckline may be over.
(ZeroHedge)… China and Japan are set to launch direct currency trading, bypassing the dollar, and the associated benefits and risks, entirely. “But how can that be?” dollar purists will scream. After all, when one bypasses the dollar, one commits blasphemy to a reserve currency. Somehow we think China gets that. China may wish to do this to build up some currency reserves in Yen. But what if the Yen falls in a fashion similar to the Euro?
– Tomorrow is a pivot day for FXE, so it may do a quick test of the underside of its Head & Shoulders neckline at 124.85. This move, if it were to happen, would have the effect of another run on the shorts. This, in turn, would set up the next waterfall decline starting as early as Monday. FXE remains oversold and in need of some relief, however transitory. The next major pivot low doesn’t happen until June 15-18. The Orthodox Broadening Top agrees with the target for the massive Head & Shoulders at target, which portends a decline to parity.
(ZeroHedge) …there was one piece of news that could force an all-out panic in a market already on the edge, it is that outgoing (as in finally departing) US Treasury Secretary, Tim Geithner, was getting involved in the European Crisis. Sadly, this is precisely what happened. You just can’t make this up!
– TLT may be finishing its parabola very soon. Having met its minimum Head & Shoulders target, TLT now appears to be in its final blow-off that catches the “greater fools, er…Muppets” every time. We may be counting the days on one hand for the end of this rally. In either event, the trendline will be the governing tool to determine whether the final rally is still intact.
(ZeroHedge)… the just released note from the very same Garzarelli who 4 months ago was so gung ho on shorting bonds, just cut his bond yield forecast for the entire world, US Treasurys included: “We now see 10-year US Treasuries ending this year at 2.00% (from 2.50% previously, and 30bp above current forwards), rising to 2.50% (previously 3.25%, and 60bp above the forwards) by December 2013. The corresponding numbers for German Bunds are 1.75% and 2.25%.” In other words, it is now that Doug Kass should have made his short bonds call: not when he did it, a month ago and got his face bath salted right off. For those asking – yes: Goldman is now selling bonds to clients.
– GLD seems to be caught between its new Head & Shoulders neckline and short-term trend resistance at 152.57. The correction appears to be over. When GLD falls through this final support, it will be a massive wave iii of (iii) that will be relentless until the target is reached…or surpassed. This gives GLD only two weeks to decline into a Primary Cycle [wave (iii)] low expecting a bottom in mid-June.
ZeroHedge writes, “…Thus despite the continuing questioning of gold’s safe haven status by the less informed, gold was again a safe haven to investors in May – especially those in the Eurozone who are currently most in need of a safe haven. Yesterday may have been a form of ‘tipping point’ for gold whereby it again starts to display its safe haven status as it did soon after the initial price falls at the time of the Lehman financial crisis.
The trading fundamentals look increasingly sound. The COT data is very bullish from a contrarian perspective with the net long position extremely low. Also, the large commercial traders are aggressively covering their gold and silver shorts which is always a good indication that the precious metals are close to bottoms. Still talking bullish.
– USO fell away from the neckline of the larger Head & Shoulders pattern in what appears to be the start of its largest decline yet. We will be watching closely as USO tangles with its Cycle Bottom support at 31.87. If USO is entering wave (iii) of 3, the Cycle Bottom may not provide more than a transitory bounce. Fibonacci relationships suggest a decline to 22.00 in wave (iii).
– FXI appears to having the same issues as GLD. It may have completed a reversal pattern and about to launch in a wave iii of (iii). 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.
– Since INDY has met its minor Head & Shoulders objective, I will remove that information from the chart. The reason is that it is now preparing to break the massive Head & Shoulders neckline below 19.37. It is due for a Master Cycle low in mid-June (same as GLD and FXI). This pattern has become complex, but Head & Shoulders patterns launch wave threes. This has the appearances of a monster pattern unfolding.
XLF bounced from mid-Cycle support at 13.81 in a reversal pattern, preparing to decline below its Head & Shoulders neckline at 130.70. It, too, has a target date of mid-June for its Master Cycle low. The current decline should take XLF beneath its November low and possibly to the massive “probable” neckline at the bottom of the chart at 10.85. It appears now that XLF shares the “liquidity cycle” with other ETFs that are being followed in this report.
(Bloomberg) The discrepancy between prices used by the chief investment office and JPMorgan’s credit-swaps dealer, the biggest in the U.S., may have obscured by hundreds of millions of dollars the magnitude of the loss before it was disclosed May 10, said one of the people, who asked not to be identified because they aren’t authorized to discuss the matter.
“I’ve never run into anything like that,” said Sanford C. Bernstein & Co.’s Brad Hintz in New York, ranked by Institutional Investor magazine as the top analyst covering brokerage firms. “That’s why you have a centralized accounting group that’s comparing marks” between different parts of the bank “to make sure you don’t have any outliers,” said the former chief financial officer of Lehman Brothers Holdings Inc. What else are they hiding?
Have a good evening!
Anthony M. Cherniawski
The Practical Investor, LLC
P.O. Box 129, Holt, MI 48842
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