What Do These 8 Technical Indicators Mean for the Markets? - Guest Post

What Do These 8 Technical Indicators Mean for the Markets?
May 7, 2010

Editor's Note: The following article is excerpted from Robert Prechter's April 2010 issue of the Elliott Wave Theorist. For a limited time, you can visit Elliott Wave International to download the full 10-page issue, free.

By Robert Prechter, CMT

Technical Indicators

It is rare to have technical indicators all lined up on one side of the ledger. They were lined up this way—on the bullish side—in late February-early March of 2009. Today they are just as aligned but on the bearish side. Consider this short list:

    Crude Oil Plunges as Turbulence Rocks Financial Markets, Oil Market Summary - Guest Post

    Guest post by OilPrice.com

    Crude Oil Plunges as Turbulence Rocks Financial Markets

    Oil Market Summary for: 03/05/2010 to 07/05/2010

    In a week of market turmoil resulting from Greece’s fiscal crisis, oil went from an intraday high above $87 on Monday – its highest point in more than a year and a half – to plunge briefly below $75 on Friday.

    Germany Approves Greek Aid, Moody's on Italy, Portugal, Spain, UK, RMBS, BP and EUR/USD Rallies (5/7/2010)

    Since hedge funds are gaming the hell out of credit ratings agencies, like the US subprime mortgage crisis back in 2007, below are a few updates from Moody's this week. By the way, Economist William Engdahl does not see any EU contagion risk. We'll see what happens. The German Parliament today approved their portion of the Greek aid package, which is 22.4 Billion Euros out of 110 Billion (read full article at NYT Dealbook).  EUR/USD rallied to 1.2705 from 1.261 earlier in the morning.

    Joe Saluzzi, Irene Aldridge, Santelli on The Crash of May 6, 2010, High Frequency Traders Shut Down Amid Turmoil

    Remember all the drama with high frequency trading last year? Well today saw the second largest intraday market swing (1,010) since 1987.  October 10, 2008 came in first place during the financial crisis. Irene Aldridge of Able Alpha, Joe Saluzzi of Themis Trading and Rick Santelli spoke about the intra-day crash in the video below. The WSJ reported that big HFT players (Tradebot Systems Inc, Tradeworx) shut down during the market turmoil, pulling liquidity/"buyers of last resort" out of the market, which is what Joe Saluzzi and Dennis Dick of Bright Trading have been warning about.  There's always the Fed though!  By the way look what happened to PG. Insane..

    PG Loses 30%, But Closes Down 2%! (Chart), NYSE CEO on Sell Off (Video)

    The chart of the day is $PG (Procter & Gamble), which lost 30% at one point but rallied back to close down only 2%! It even took out the March 2009 low! Some say it was a trader's fat finger (ordering a billion shares instead of a million) combined with high frequency traders taking out stops. The NYSE CEO explains what happened in the CNN Money video below. The market took a surprise hit as well, down 9% at one point. Who knows what happened, but check out the print on the chart and read the articles.

    The Cover-up: BP's Crude Politics and the Looming Environmental Mega-Disaster - Guest Post

    Guest Post by OilPrice.com

    The Cover-up: BP's Crude Politics and the Looming Environmental Mega-Disaster

    We have been informed by sources in the US Army Corps of Engineers, Federal Emergency Management Agency (FEMA), and Florida Department of Environmental Protection that the Obama White House and British Petroleum (BP), which pumped $71,000 into Barack Obama's 2008 presidential campaign -- more than John McCain or Hillary Clinton, are covering up the magnitude of the volcanic-level oil disaster in the Gulf of Mexico and working together to limit BP's liability for damage caused by what can be called a "mega-disaster."

    Interesting Reads at Zero Hedge Today (5/6/2010), SPY Lost 9% at One Point

    Interesting reading at Zero Hedge today giving the scoop. I'm going to write about $USO/$OVX, $USO puts gone wild, ETF ratios and currencies tonight. EUR/USD fell off a cliff today and is testing support in the descending channel as well as the 1.24 floor. Also at one point today $SPY, the S&P ETF, lost 9% (fat finger?, hedge fund liquidation? or.... weakness ahead for the economy).

    $SPY Intraday 5/6/2010 (FreeStockCharts.com)

    Google Chrome Browser Speed Test Video, Faster Than Potato Bullet, Sound Waves and Lightning

    The Google Chrome browser is faster than a potato bullet, sound waves and lightning. I might have to download Chrome, I currently use Firefox and Safari on a Macbook. Thoughts? Find more videos at their Youtube channel. I added the behind the scenes segment (hat tip fbonacci).

    Economist William Engdahl Does NOT See Greek Contagion Risk, Compares Eurozone Crisis to 1997 Asian Financial Crisis

    On 2/16/2010 I put up a video with economist William Engdahl (see here) talking about the Greek fiscal debt crisis and complex derivatives partly responsible for the eventual €110 billion IMF/EU bailout a few days ago. Here he is 3 months later on RussiaToday.

    Engdahl compares what's going on in Europe to the 1997 Asian Financial Crisis when the "smallest weak link" in the chain was targeted. In this case it's Greece in the Eurozone chain. He still blames Goldman for designing the special derivatives that allowed Greece to hide their true debt/deficit back in 2002.

    Engdahl DOES NOT see Greek contagion risk infecting Spain and Portugal. The credit default swaps (held by America and City of London? lol) of Spain and Portugal are moving higher though.

    Brown Brothers Harriman: Euro to 1.18, Greek Bailout is Disguised Bank Bailout (Marc Chandler)

    Marc Chandler, global head of currency strategy at Brown Brothers Harriman, was on Bloomberg on May 4 talking about the Euro and Greek debt bailout.  By the way, rioters tried to storm parliament today protesting the austerity measures and EUR/USD broke below 1.31 support.

    ADB Launches $9 Billion Plan for Solar Energy in Asia (Asia Development Bank) - Guest Post

    [Solar Energy] Guest post by OilPrice.com

    ADB Launches $9 Billion Plan for Solar Energy in Asia

    The Asian Development Bank launched a $9 billion solar power initiative to develop projects generating 3,000 megawatts by 2012.

    The announcement, which came at the regional lending agency’s annual meeting in Tashkent, Uzbekistan, said that Central Asian countries would be prime candidates for siting the projects.


    The large speculative S&P E-mini future shorts (see April 28 post) and the $IWM puts opened on April 15 are making loot or successfully hedging this breakdown. The 61.8% retracement definitely had a say in this sell off, imho. I've been behind the curve reporting on $SPY but as you can see it formed a head and shoulders top, took out the $118 floor and today broke through the 50 day moving average and long term uptrend from March (see charts below). Now $SPY bears have to battle the strong $115 support level.

    Thousands of Greeks Riot Against Austerity Package (Videos, 5/5/2010)

    Greeks continue to protest against the austerity package. Watch the videos below.

    Marc Faber: China Looks Weak Technically, Could Crash in 9-12 Months, State Street Rates China Tactical Underweight (FXI, EWH)

    Feeding off my previous post full of goodies on China (FXI, EWH charts, Jim Chanos on Fox etc), Marc Faber of the Gloom Boom & Doom Report thinks the Shanghai and Hong Kong stock indexes look weak "technically" (lower highs during 2009 and below resistance). He also mentioned that industrial commodity prices, industrial sensitive currencies (Aussie) and related equities (Freeport, Rio-Tinto) are all acting "heavy".  He then dropped the "crash" call.

    Mahmoud Ahmadinejad on Charlie Rose and RussiaToday (May 4)

    Watch interesting interviews with Mahmoud Ahmadinejad (President of Iran) on Charlie Rose and RT America (embedded below) while he was in New York for the UN Nuclear Conference.

    Gulf Oil Spill Threatens Halt to White House Offshore Drilling Plans - Guest Post

    Guest post by OilPrice.com

    Gulf Oil Spill Threatens Halt to White House Offshore Drilling Plans

    The oil spill in the Gulf of Mexico from a collapsed offshore drilling rig could affect White House plans to extend offshore drilling, press secretary Robert Gibbs acknowledged as the oil slick threatened onshore sites from the Louisiana wetlands to the Sarasota beaches and disrupted fishing and energy industries.

    Syria Appeals For More Foreign Oil Money Yet Bureaucracy Remains A Questionable Obstacle - Guest Post

    [Geopolitics] Guest post by OilPrice.com

    Syria Appeals For More Foreign Oil Money Yet Bureaucracy Remains A Questionable Obstacle

    As Syria aggressively courts foreign investors to rescue its dwindling oil and gas sector, government corruption and problems settling disputes remain sticking points for some interested international players. But experts are divided over how contentious these obstacles truly are.

    Clear Resistance Above $FXI, April China PMI, Jim Chanos on Fox, Vitaliy Katsenelson Report, Charts (Shanghai Composite, Hang Seng, $FXI, $EWH)

    Jim Chanos was on Fox Business last week chatting with Charlie Gasparino about the potential property bubble forming in China. He thinks China's growth is on a treadmill to hell and the property boom is a house of cards.  It might be time to hedge China or potentially ride a retracement (in my opinion).  Options are getting more expensive though.  Implied volatility on FXI and EWH (option premium) has been creeping up since March, FXI (25 to 33), EWH (19 to 24).  Way off the peak though.  The Government is tightening up and could affect growth going forward. People talk about Greek contagion affecting Europe, what about China contagion (US market, commodities)?  I charted out the Shanghai Composite, Hang Seng, Hong Kong ETF (EWH) and China FXI and they broke the uptrend line.

    Deepwater Horizon Oil Spill Explained, Ways To Contain Leak (Video)

    Al Jazeera explains the Deepwater Horizon oil spill.

    EUR/USD Support Hits at 1.31 or 1.24, Euro Shorts Hit Record (COT)

    Support for EUR/USD hits at 1.31 or 1.24 imho, if it stays inside the descending channel.  It's currently trading at 1.31576, -0.35%. We'll see who in Euro-land is on deck after the IMF/EU bailed out Greece.  The immediate term April low to test is 1.31147 (from 4/28).  1.31 must hold here or EUR/USD will hit the 20s.  I've been watching EUR/USD sell off since late 2009 when the US Dollar broke out.  It's been one hell of a ride for the Euro.  Maybe shorts will target the US Dollar soon to give Europeans a break.  Large speculators in the Euro are still piling on the short side.
    "Hedge funds and other large speculators raised net wagers on a euro drop by 25 percent to 89,013 contracts in the week ended April 27, Commodity Futures Trading Commission data shows".  [Bloomberg]
      Below is the monthly chart. 

    EUR/USD (Euro/US Dollar - Courtesy of FreeStockCharts.com

    NYU's Altman Sees High Yield Bond Correction (JNK, HYG), Plus Greek Contagion Risk (Spain and Portugal) Feeding Into Euro

    Edward Altman, a finance Professor at NYU, thinks a correction is near for high yield bonds.  Below are quotes, the Bloomberg Video and charts of HYG and JNK (high yield bond ETFs) in a rising wedge, waiting for a catalyst.
    "I'm concerned that it's come back too fast and too furious and the spread between high yield bonds and 10-year Treasuries now below 4.5% is too low given the risks in the market. So, it's very nice to see this recovery. The world was on a verge of elimination of its financial markets and now its come roaring back. But I think too fast, too furious and there will be a correction".

    Ahmadinejad, Clinton Full Speech Videos at UN Nuclear Conference, US and Others Walk Out (New York)

    Iranian President Mahmoud Ahmadinejad spoke in New York at the United Nations Nuclear Non-Proliferation Treaty (NPT) Review Conference. The first video is his full speech. The next video shows US Reps and other countries walking out and the last video is Hillary Clinton's speech. It was Ahmadinejad vs. Hillary Clinton. If interested Mahmoud Ahmadinejad spoke at the Tehran, Iran Nuclear Conference a few weeks ago (videos).

    Barton Biggs of Traxis Sees $88-90 EPS in 2010, $100 in 2011 (Video)

    Barton Biggs aka Notorious B.I.Ggs of Traxis Partners thinks US earnings momentum will continue. He sees 2010 and 2011 S&P EPS (earnings per share) between $88-90 and $100 respectively. So.... 89 * 16 multiple = $1424 S&P in 2010 and 100 * 16 multiple = $1600 S&P in 2011. The S&P is currently trading at $1,204. JP Morgan's US Equity Strategist Thomas Lee thinks 2010 S&P EPS could hit $81, which would equal $1,296 on a 16 multiple.   Hmmmm... What do you think folks?  The video below is courtesy of Bloomberg.

    Lloyd Blankfein CEO of Goldman Sachs on Charlie Rose (April 30, 2010)

    Here is Lloyd Blankfein (CEO of Goldman Sachs) on Charlie Rose on 4/30/2010. Berkshire Hathaway's Warren Buffett (owner and client of $GS) still thinks highly of Lloyd B and recently said he should not step down.
    "Asked whom he would like to see run Goldman if Blankfein were replaced, Buffett said: "If Lloyd had a twin brother, I would vote for him. I have never given that a thought." "[MSNBC]

    If interested here is the video of Lloyd Blankfein during the congressional testimony.  For the Charlie Rose video click here.

    JNK (High Yield Bond ETF) and Credit Spread Analysis, How High Does JNK Go? (IEF, TLT, LQD, JNK)

    [Update: I originally started this post with $JNK option activity but the massive call volume didn't transfer to open interest. I'm thinking it could have been gaming the monthly dividend (dividend capture using covered calls)]

    In my opinion, these high yield ETFs aren't worth the fight until yields break out or people re-price credit risk on an event. These rising wedges and ceiling tests keep breaking out to the upside.  I was surprised to see HYG (more liquid high yield ETF) and the S&P leveraged loan index so resilient during all of 2009. You have to respect ZIRP (zero interest rate policy)! By the way, the Fed Funds rate is still lounging between 0-0.25% (Fed statement, April 28). So how high does the value of junk go from here?

    Mergers, Liquidations, Bailouts and a Mining Tax (Sunday Night News)

    Continental and United to combine- Associate Press
    Greece Gets $146 Billion Rescue on EU, IMF Austerity Package - Bloomberg
    Movie Gallery to close all U.S. stores, shutting 2,415 Stores - Reuters
    Australia unveils mining tax - Reuters
    TEXT-Rio Tinto says concerned about Australia mining tax - Reuters
    Australia Opposition Leader Abbott: Deeply Hostile To New Mining Tax - WSJ
    IMF/EU Bails Out Greece (€110 billion), Papandreou Text - Distressed Volatility
    Faber Says China's Economy May `Crash' in Next 12 Months - Bloomberg Video
    Senate's Goldman Probe Shows Toxic Magnification - Wall Street Journal
    China Raises Banks’ Reserve Ratios to Cool Economy (Update2) - BusinessWeek
    Update to Fed Rent-to-House Price Graph - Calculated Risk

    IMF/EU Bails Out Greece (€110 billion), Papandreou Text, Greek Finance Minister, Riots (Videos)

    Greece got a bailout Sunday from the IMF (International Monetary Fund) and EU (European Union).  There will be harsh austerity measures (increase in taxes, lower public sector wages, pension reform), read this Reuters article: Greek cabinet to discuss tough new austerity steps and listen to the Greek Financia Minister speak below.  Specifically on the bailout, WSJ reported that,
    "Greece reached a historic deal with other euro-zone countries and the International Monetary Fund for a three-year, €110 billion ($146.5 billion) bailout". [full WSJ article]

    Roubini On Greece Debt Restructuring, Second Half US Growth, Euro (Bloomberg - 4/28/2010)

    Nouriel Roubini (Prof at NYU, RGEmonitor.com) was on BloombergTV with Willow Bay on 4/28/2010. Here are a few key points he made about restructuring Greek debt, Euro-Zone contagion risk, potential double dips, the Euro and US growth in the second half of 2010 (+ the video). This just hit the wire: Greece Reaches Bailout Deal With EU, IMF - WSJ.

    On Greece/Euro-Zone

    Dow 61.8% Retracement Level In Play, Could Pose Challenge To Market (DIA, DJI)

    In the video below, Adam Hewison of MarketClub points out that the Dow (DJI) is trading at the 61.8% retracement level (2007 peak/2009 trough). This area could pose a challenge to the market, in his opinion. I will zoom in on short term support levels later that must hold.

    Eric Sprott Talks Up Silver on CNBC, Silver Ready For Big Breakout? (SLV, GLD, PHYS)

    Eric Sprott on CNBC 4/15/2010
    Eric Sprott, who runs Canadian hedge fund Sprott Asset Management, was on CNBC a few weeks ago talking with Maria Bartiromo.  He is bullish on silver and gold and bearish on the market and cyclical metals.  His firm just started a new gold ETF in March called the Sprott Physical Gold Trust ($PHYS) which offers a "physical delivery option", unlike GLD.  I will chart out SLV and the silver future tomorrow and look at the options.  Unlike GLD, SLV hasn't broken through the 2008 highs yet.  Longs are closing in on the big battle though.  Below is the CNBC video and key points he made during the interview.