Intra-day: August 31, 2011

UPDATE:  1:00 PM

I've seen some huge manipulations of economic data before, but the July factory orders numbers from Census take the cake.

Total for all manufactures goods fell almost 7.5%, from $472B to $437B.  This is huge news.   So, why wasn't that the headline, instead of...

Because, through the magical seasonal adjustment process, it was reported as a $446 to $453 billion increase.  The durable goods component fell from $213B to $186B, but was seasonally adjusted to a $197B to $202B increase.

The rest of the report is filled with stuff that has manufacturers shaking in their boots, but you'll never see it reported as such.  That would be negative and might scare investors who, apparently, can't be trusted with the truth.

Quick note on the ADP numbers, which are always amusing and seldom accurate.  The 91K (versus 100K expected) doesn't include the striking Verizon workers.  So, the real headline should be 46K versus 100K.  A bit more of a shortfall, no?

Likewise, the Challenger Gray job cut numbers were reported as a sharp drop in layoffs.  The reality is that YTD job cuts are at 363K versus 2010's 335K.   The 2011 v 2010 monthly comparisons continue to look bleak.

And, finally, the ISM Business Barometer out of Chicago hit a 21-month low.

UPDATE:  10:30 AM

Rising wedge inside a rising wedge on the 5-minute chart.

More importantly, a bearish Gartley pattern just completed on SPX.

I'm always a bit skeptical when a Gartley point X isn't at a clear pattern high or low.  In this case, it's a distinctive point from Aug 3, but was clearly part of a continuing downturn that was larger in scale.

I might have been tempted to ignore it all together, except for this bearish Gartley on AAPL, the point X of which is at AAPL's all-time high.

And, this, COMP at a major backtest of its neckline.

And, this, NDX (Nasdaq 100) backtesting its SMA 200.

There are other indicators, but you probably get my point.  We're at an inflection point here, where there's plenty of reason to be cautious regarding the upside.

If we close above Fan Line B, I'll be very surprised.  I won't be surprised if we put in an interim high at 1230.


ORIGINAL POST:  4:00 AM EST

I redrew Fan Line B to eliminate the shadow from March 16th.   It's still hanging in there as the limit of this latest move up.

As noted yesterday, it intersects right here with not only yesterday's high, but Fan Line #4 (from Jul 09 via Aug 10) as well.

It also intersects with Fan Line G from the Apr and Nov 10 highs and a very important Trend Line from  the Feb 18 highs that also marked the Apr 18 and Jun 16 lows.  They're all marked here as purple lines.

For FL B to hold, we're going to have to reverse tonight's futures rally.  My gut is that something in this morning's economic reporting -- PMI, Factory Orders or Employment -- will start us off in the right direction.

Intra-day: August 30, 2011

UPDATE:  12:50 PM

The more I look at Fan Line B, the more I like it as the upward limit here.

I'm having second thoughts about 2011 having slowed relative to 2008.  I'm looking at the alternative -- that we've sped up again on a relative basis -- and am growing more comfortable with it.

I might just have to get over the fact that we had hardly any blips on the way down to the 1101 bottom.  But, I'm not ready to abandon a 5th wave down just yet.  To do so means the 22nd's 1121 low was a truncated 5th, and I'm just not buying that.

Consider the Fibonacci similarities if we accept the alternative.  These levels are drawn off the patterns highs -- i.e. 1576 for 2007 and 1370 for 2011.

We've retraced to just above the .382 level twice, which is just what happened in 2008.  In 2008, the valley in between was a .618 retrace; 2011's was a .886 retrace.  If this comparison were to hold, prices should head back down in the next few days for a proper wave 5 at new lows. 

It gives me a little more confidence that we have a rising wedge and obvious divergence, seen here on the 15-minute chart.

There's plenty of important economic news coming out in the next few days -- the perfect catalyst for the next leg down.

UPDATE:  10:20 AM

Consumer Confidence plummets from 59.2 to 44.5.  Expectations Index even worse, from 74.9 to 51.9. 

 

Case-Shiller 20-City Home Price Index is also out.  Prices rose 3.6% from the 1st quarter, but are still off 5.9% from 2Q 2010.

And, from the folks who would have reported Lincoln's assassination as "Excellent Play Enjoyed by Nearly Everyone"...

Don't forget the growing contract cancellation problem.  Yun refers to it here rather obliquely, but this will be a larger issue going forward given the plunge in consumer confidence we're watching.


UPDATED 10:00 AM

Yesterday's rally, the 6th in 7 days as talk radio crowed all day, was either the result of (depending on whom you believe):

(1) an increase in consumer spending;
(2) relief that New York was spared; or,
(3) Bernanke's "many options" to stimulate the economy.

I'll leave NY alone; readers will no doubt have their own ideas about whether it being spared was a good thing.  The increase in spending was accompanied by a decrease in income and increase in debt -- definitely not a good thing.

Bernanke's speech was hardly encouraging.  If people believe he has the ability to save the economy, then he's won half the battle.  In fact, it's so much better than actually instituting QEn and having investors discover that it won't stop the next slide.

Okay, quick thoughts on patterns.  The H&S is kaput.  Ditto the bullish Butterfly and the triangle.  What we're left with is a bearish potential harmonic pattern and a few interesting fan lines.  BTW, Fan Line B finally stopped yesterdays's rally, as it did on Aug 5, 15 and 17.

First the harmonics:

I'

Note that the C point is at a .786 retracement of AB.  The question is where's our point X, which would determine how great the AB retracement is?  The most interesting point to me is the August 3-4 high around 1261.20.

It puts point B at a .618 and makes the pattern into a potential Gartley.  Point D's on Gartleys are typically at the .786 retrace, which here would be 1227.  The .886 would be at 1243.  The next moving average to the upside is the 50 day at 1259 -- further confirming that as the highest possible target in this pattern.

These points also happen to coincide with a couple of interesting fan lines, so they bear close watching.  I already mentioned Fan Line B, which was the terminus of Monday's rally.

Other fan lines to watch on the upside are Fan Line #4, at 1220 and Fan Line A, at 1249.  Line #4 is also the level of horizontal resistance from the fractally similar pattern last November.  Fan Line A is potentially very important as it's the same fan line that stopped this past June's slide, and also marks the low from the Mar 16 plunge.

It's also worth noting we've retraced to approximately the .382 level off the May 1370 highs.  While it wouldn't be very satisfying from a harmonic standpoint, there's a small possibility that the Fibonacci level of .382 and Fan Line B are enough to stop this rally here.  After all, it was Fan Line B that stopped the afore-mentioned Mar 16 plunge.

Weekend Update - August 28, 2011

UPDATE:  9:45 AM

We are very close to the .886 Fib retrace at 1198.51.  If we hold here, it bolsters the Butterfly and H&S cases nicely.

UPDATE:  9:30 AM

Real Disposable Income down, spending and inflation up.  Not a good recipe for growth, unless you're talking about credit cards and car loans.

This rally should fizzle between 1190 and 1199.

UPDATE:  12:25 AM

Link for tomorrow's economic data.

We're expecting personal income, spending and prices at 8:30 EST.  Shouldn't be any surprises, as this data has been largely been covered in other reports this past week.

Keep an eye on the Butterfly pattern.  Remember, we've put in our X, A, B and C points already.  Point C came at 1190.68 on Thursday (the .786 level) but could be replaced at the .886 level of 1199 if prices exceed 1191.  If we reverse hard off either of those prices, look out below.

Also, note that Point A marks the top of the head of our H&S pattern, and Point C marks the right shoulder.  The H&S target is 1040, essentially the same as the Butterfly target at the 1.618 extension.  Gotta love coincidences.

Just a quick note...the discrepancies between the two tops have all come at times like this -- when there was a great deal of confusion and dissension, especially in the bear camp. 

I will be traveling Monday - Wednesday, so intra-day posts will be spotty at best.  Good luck to all.



ORIGINAL POST:   9:15 PM

This is a very confusing time, with many of the indicators I watch slowly turning bullish -- but with a total lack of uniformity,  on very low volume and in the face of awful economic news.   I attribute the failure of the market to turn down to the highly anticipated Jackson Hole affair.  Investors have been hyper-focused on the prospect of another round of QE.

Bottom line, I think the 2007/8 vs 2011 comparison is still in play, but with the current period "slowed down" by this distraction.  It's happened several times before.  The idea probably sounds a bit odd, but I noticed months ago that the biggest difference between this and the 2007/8 market was the speed at which the topping pattern unfolded.

In February, this market was completing the topping pattern at a faster pace than did the 2007/8 market.  By May, the speed had caught up.  By June, it was running a little slower; and, if I'm correct, it's continued to slow relative to back then.  Consider some move comparisons:

                                     2007/8                                     2011 equiv.

                       7/7 - 8/16/07  (20 days)                2/22 - 3/16/11  (16 days)
                       9/17 - 10/11/07  (16 days)            4/16 - 5/2/11  (17 days)
                      10/11 - 11/26/07  (30 days)           5/2 - 6/16/11  (32 days)   
                      11/26 - 12/11/07  (11 days)           6/16 - 7/7/11  (14 days)
                      12/11 - 1/9/08  (19 days)               7/7 - 8/9/11  (23 days)
                      1/9 - 1/23/08  (9 days)                   8/9 - 8/26  (13 days so far)


Here's a picture of the late June 2011 divergence.   The market had bottomed just like in 2007 and was headed back up.  But rather than a 10-day rally to an interim high, we had a significant hiccup after 4 days when the administration foolishly tampered with the strategic petroleum reserve.

The market tumbled back to its lows and had to restart the rally.  It eventually reached its comparable target, but took an additional several days.

I believe the timing divergence is at play again.  Instead of oil manipulations, the prospect of Bernanke letting loose another round of QE simply stalled the current market.

As of Friday, we were running 4 days "behind" the 2007 equivalent.  This gave a number of chartists (myself included) pause.  It seemed as though bears didn't have the cajones to finish the job it started, and bullish sentiment (and price action) has started creeping back in.

But, in my opinion, we're simply taking longer to process the 4th wave, with points A-B-C-D corresponding to 2008's 1-2-3-4 on the above chart.

A number of bears are calling the 8/22 low of 1121 a truncated 5th wave.   I'm no Elliott Wave expert, but I find this explanation dissatisfying.  Such a powerful 3rd wave should have more follow-through than this wimpy little triangle-looking action.

Consider the 2008 equivalent.  There's a very obvious triangle-looking a-b-c thingy (told you I wasn't an EW expert) in the 4th wave position from 1/9 - 1/15/2008 that corresponds nicely to the triangle we're currently tracing out.  I consider it a pennant, and these are usually continuation patterns.

It's also entirely likely that we're trying to trace out a similar harmonic pattern.  In 2008, the triangle formed a nice little Butterfly pattern that took SPX down to a 3.00 XA extension.

As of this past Thursday, we completed points X-A-B-C of a Butterfly pattern.  Typical 127.2 and 161.8 extensions would locate point D at 1072 or 1035 respectively.  I like these numbers, as they correspond nicely with some of the other targets we've been eyeing (H&S, etc.)

A 3.00 extension would mean 888.  I'm not currently looking for anything that extreme (but certainly wouldn't complain.)

There are a lot of other indicators sending mixed signals.  For this reason, I'm going to handicap this idea of mine at about 60/40.  If I'm wrong, we head back up to as high as 1250 before heading much lower.  So, I'm not terribly concerned about timing, as the ultimate destination is the same.

In any case, we should know in the next few days.  There has been a surfeit of horrid economic news, and one of these days very soon it's going to overwhelm the Plunge Protection Team's best efforts.

Intra-day: August 26, 2011

UPDATE:  1:00 PM

While I'm searching for the Oreo's, I want to make a small point regarding the timing of the moves over the past two days.  If the 56-pt decline had all taken place yesterday and a 45-pt rally today, most of us would view this as an obvious retracement of an impulse move down.

Also, watch the rising wedge on the 5-minute chart.  It also argues for a reversal here.

UPDATE:  12:35 PM

Having trouble getting past the 20-day moving average at 1180.93.

Look for a possible turn here.  We have a Butterfly pattern turning point at 1176 (the 1.272 extension) and 1187 (at the 1.618.)  Also, check out the RSI channel on the 15-minute chart.

Note today is a scheduled POMO settlement date.  They purchased $439 million in TIPS yesterday, but probably had billions more available to the Plunge Protection Team given how important it was that the market not crack on the no QE news.

You can find the NY Fed schedule here.


UPDATE:  11:25 AM

Little bat or crab setting up on DX.  If a bat, my top choice, it should reverse around 74.05.  A crab at the 1.618 XA extension would target 73.64.

UPDATE:  10:55 AM

Will the right shoulder hold?  This is about as close as you can get...

Meanwhile, the dollar backtested its falling wedge and is attempting to break higher.

UPDATE:  10:30 AM

The market's not thrilled with no new quantitative easing, falling 25 points before snapping back for a backtest of the H&S neckline.  If the neckline (or even the right shoulder) holds, the next stop should be 1121.

Excerpts from Bernanke's speech (full text here) courtesy of CNBC.

ORIGINAL POST:  8:50 AM

Just a reminder, today is a POMO day.

Bottom line on the 2nd GDP revisions -- a mixed bag, in line with expectations, evidence of an economy still stumbling along.  I doubt it gives the Fed enough ammunition for QE.

GDP was revised downward from an annual rate of 1.3% to 1.0%,  in line with expectations and confirming the slowdown underway.  The first quarter real increase in GDP was 0.4%.

The biggest revisions were to exports (lowered from 6% to 3.1% increase) and inventories (lowered from $49.6 billion to $40.6 billion.)  Corporate profits rose 4.1%, increasing $57.3B in Q2 versus $19B in Q1.  Yet, corporate income taxes fell $3B versus a Q1 increase of $17.6 in Q1.

Consumer spending was revised upward from 0.1% to a still marginal 0.4% -- the lowest increase since 4Q/2009.   Inflation, as measured by the personal consumption expenditure index, rose 2.2%.  Real disposable personal income was revised upward from 0.7% in both the 1st and 2nd quarters to 1.2% in the 1st and 1.0% in the 2nd.

From Briefing.com:

And, from the DOC: