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Tuesday, August 28, 2007

Perfect Charts



All the charts I’m looking at are just perfect right now. Almost beautiful. All the major indices bounced into resistance around declining trendlines, declining 50 day EMAs, or declining 200 day EMAs after barely completing 61% Fibonacci retracements. All the bounces were completed on low volume and financial indices bounced the least. Low yield currencies, like the Yen, have pulled back and closed important gaps on the charts. The high yield currencies, such as the Australian dollar, have all bounced out of deeply oversold territory and into important resistance. Everything is ready now for the second leg down. Time to test the lows…

A few catalysts of course would help:

U.S. Stock-Index Futures Fall; Citigroup, Lehman Shares Decline: “U.S. stock-index futures declined after Merrill Lynch & Co. analysts said tighter credit markets will hurt earnings at banks and securities firms. Citigroup Inc., Lehman Brothers Holdings Inc. and Bear Stearns Cos. fell after Merrill lowered its recommendation on the shares and cut its profit estimates for this year and next.”

About time… and duh… of course ‘tighter credit markets will hurt earnings.’ Analysts are always too late.

German Business Confidence Declines to 10-Month Low (Update3): “German business confidence fell to a 10-month low in August after an increase in the cost of credit clouded the outlook for economic growth.”

Well, considering two good sized German banks just got bailed out courtesy of the state, is it really that surprising to see confidence drop?

When the state bails out those that should have failed you get the worst possible economic system “Capitalism without financial failure is just socialism for the rich.” James Grant wrote a very worthwhile read in NYT: The Fed’s Subprime Solution. Barry Rictholtz of The Big Picture also has a good post about this story.

Yen Gains on Speculation Credit Losses Will Deter Carry Trades: “The yen strengthened for a second day against the dollar on speculation banks will report more credit- market losses, prompting traders to pare higher-yielding investments funded by loans in Japan.”

Let the carry unwind continue. Also of significance are the BOJ minutes for july.

BOJ to Raise Interest Rates Gradually, Minutes Show (Update2): “The Bank of Japan will raise interest rates gradually based on developments in the economy and prices, July meeting minutes released today show.”

The BOJ really doesn’t like the Carry Trade, especially now that it is becoming more and more obvious that cheap liquidity can cause serious misallocations of capital and under appreciation of risk.

“Governor Toshihiko Fukui told reporters after last week's decision that keeping borrowing costs too low may spur risky investments, suggesting the bank still plans to raise rates.”

Put on your helmets… time to plunge.

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