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Friday, May 16, 2008

Fibonacci Heaven, Equities Party On

The international indices are all in Fibonacci heaven. All the indices have bounced and are now entangled in the 50% retracement level. A couple indices have had the strength to make it all the way to the 61.8% level. ONE index appears to be invincible: The Brazilian BOVESPA.

It is pop or drop time across the globe. Since economic data continues to deteriorate, I would argue for more drop than pop.

A quick recap and update on some of my recent posts and chart comments:

Gravestone Doji And Cool Correlations: Volatility, Yen: "We may have a Gravestone Doji here on the S&P 500 (SPX).

In a bullish trending market the gravestone illustrates an unsustainable bull rally where price drives up to new highs in trading on day two, but sellers take control by market close.

Although this formation is a moderate to weak in signal strength, it is a warning for longs that the uptrend is losing momentum and bears may retake the market soon.

Since prices have fallen out of the rising Bear Wedge and have now rallied and tested the previous high of the 1420 area, the Gravestone Doji is more relevant than usual. Today's price action must not exceed yesterday's high and preferably result in a down day..." -TheFinancialNinja, 05/15/08

UPDATE: Well, THAT doesn't seem to be working out well. All is not lost YET, but its damn close. The Bears have to hold the line here or we can easily see a move into the 1450, and 1470 areas.

MBIA Reports Scary Earnings; NEGATIVE Revenues: "The short opportunity did not last long on BKX as the price only 'spiked' into the zone around $88, before getting SLAPPED BACK DOWN. Expect some support around $80 here and then again around $75. I do expect that the lows eventually won't hold." -TheFinancialNinja, 03/28/08

"Rejected! Same price as last time and just as quick." -TheFinancialNinja, 05/12/08

UPDATE: While the S&P 500 (SPX, grey area) continues to party on, the banks have dropped out to nurse their hangovers. So how much staying power does the current rally have then in the broader market indices?

"Fannie Mae (FNM) and Freddie Mac (FRE) earnings were scary bad. Ambac (ABK) and MBIA (MBI) earnings were scary bad. MFX is likely to test the lows in the near future." -TheFinancialNinja, 05/12/08

UPDATE: The S&P500 (SPX, grey, area) has rallied to 1420 and the mortgage complex hasn't kept pace. It’s pop or drop time here. A big move in either direction is building... I'm partial to a downside break below $40 based more on fundamental than technical developments.

U.S. Foreclosures Rise 65 Percent as Vacated Homes Add to Glut: “U.S. foreclosure filings climbed 65 percent and bank seizures more than doubled in April from a year earlier as mortgage industry efforts to modify loans fell short.”

Remember that? It came out only two days ago. This came out this morning:

U.S. Builders Broke Ground on Fewest Houses Since '91 (Update1): “Construction of U.S. single-family houses in April dropped to the lowest level in 17 years, even as building of condominiums and townhouses rebounded.

Builders broke ground on 692,000 single-family homes at an annual rate, down 1.7 percent from March and the fewest since January 1991, the Commerce Department said today in Washington. Total housing starts jumped 8.2 percent to a 1.032 million pace that was higher than forecast as construction of multifamily units increased 36 percent following a 35 percent drop in March.

Building permits, a sign of future construction, rose 4.9 percent to a 978,000 pace, reflecting gains in both single- and multifamily units.”

Since the numbers were BETTER than expected, equity futures found a bit of a bid. BETTER? I’d say worse. With a giant tsunami of supply about to hit the market in the form of foreclosures ANY tick up in New Housing Starts and Building Permits should be considered bad. Now is not the time to increase the supply of residential real estate...
Building more just doesn't seem like the clever thing to do right now...


dasein211 said...

NINJA!Remeber that you are working against the forces of manipulation and they sure as hell don't want to see this thing fall. According to all technicals this pig should have died two months ago along with the dollar but there is a lot of steroid money being used to pump the marlket here. I would say not to bank tooo much on technicals at this time and to focus a bit more on the psychology. Market moves are not making sense and intervention is the reason. Marketwatch had a good piece on "Possible"(yeah right possible) intervention by the G7 on the dollar. We are in strange places indeed. We are gonna hvae to waith for the Fed to run out of securities before we see any big moves!

Ben Bittrolff said...


Don't you worry about me. I've been through this before when the Tech Bubble burst. Same shit, different pile. In the end it will still all price off the fundamentals. I'm nimble enough.

BTW, psychology is right. Now that everybody is complacent again watch the bottom drop out. S&P 1430and then 'kapow!'.

Thai said...

Ben, my investment advisor Steve Cucchiaro of Windward Investment Advisors, a man I have immense respect for, has been purchasing a lot of an ETN symbol JEM for me of late-- I was currious to get your thought on this?

Steve has mentioned in prior newsletters that one explanation for strong correlation across all asset classes is a credit crunch.

I know you are in the deflation/credit crunch camp as well, so I was interested in any thoughts on JEM you might share.

Ben Bittrolff said...


"I know you are in the deflation/credit crunch camp as well, so I was interested in any thoughts on JEM you might share."

From the website: "The ETN offers exposure to a 15-currency money market account, incorporating both local currency movements and local interest rates into the value of the note. The note covers a portfolio composed of five currencies from each of three geographic zones:

Eastern Europe, Middle East and Africa: Hungarian forint, Polish zloty, Russian ruble, South African rand, Turkish lira
Latin America: Argentine peso, Brazilian real, Chilean peso, Columbian peso and Mexican peso
Asia: Indian rupee, Indonesian rupiah, Philippine peso, South Korean won and Thai baht"

So you're effectively short the US dollar while earning a good yield.

I actually really like the looks of it. I'll do some more digging.

Brian said...

Dollar Smile theory getting demolished today in an 'ol fashioned USD bloodbath. Gold and AUD/USD really breaking out here..

eTrader said...

Weak JPY was used for carry trades that buy up e-mini futures. As long as USD is stronger than JPY, bulls would be ok. But remember, carry trades must be unwond, sooner or later.

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Georgia DUI said...

The Fibonacci heaven is a representation of the golden mean proportion that occurs so often in nature.

positive cash flow property said...

According to all technicians this pig should have died two months ago along with the dollar but there is a lot of steroid money being used to pump the market here.

mobile marketing for business said...

Although this formation is a moderate to weak in signal strength, it is a warning for longs that the uptrend is losing momentum and bears may retake the market soon.