I was gonna title this "Is "The Great Unwind: Part II" upon us?" and try and submit it as a news story, but then thought nah, too much risk of people actually reading it.
So I thought this place might make for a much nicer ridicule target-practice ;p
Faithful James16 thread readers will already know about my constant "oh oh but the DJI could be just about to crash again" doom-and-glooming, and I tried to write a "wannabe serious" article about it as well...
Comments from some FA folks as well as others are welcome, if only about the language and writing style, let alone the content.
----------------------
Is "The Great Unwind: Part II" upon us?
First, let us look back a bit...and in my case, not from an analysts/FA, but from a chart perspective.
I'm a bit torn between "Market Insights" and "TA", but really TA is always both.
Back in July, when we were just peaking out on the DJI futures at 14100 and the DJI at 14000 figures, headlines reading "new record high" and whatnot - giant red warning signs were flashing on the charts.
From overenthused rallies we were suddenly plopped into a sideways lull and dojis started to appear - right at all time highs, right at a conveniently simple, nice round number - the great 14k.
This alone may not have been that terrible, but rumorings of the mortgage crisis were starting to amass and when people started to realize what was what, the stocks got hit and got hit bad, and the DJI, S&P, carry trade(xxxJPY) and the exotics(AUDUSD, NZDUSD) took big, bit hits.
8 weeks have passed, and now we have spent this time wondering: was this it?
Are we back to business as usual?
Has the nice wizard magicked all our troubles away with a nice, swift 50bps cut?
No.
Banks and hedge funds are reporting collapses in their portfolios every day, earnings warnings and a vast unknown extent of "hidden", unrealized, unpublished "toxic waste" remain.
This is our scenario.
So nothing has really changed - or has it?
I am seeing signs on the charts that paint a scenario in which - unlike the last time, in which the USD rallied - there might a slight shift in the way things are "done" - or perhaps it is just a beginning feint.
The cores, USDCHF and USDJPY, have begun a steep and ugly descent, seemingly alone, and are dragging the xxxCHF and xxxJPY crosses with them.
This is creating the paradox of a softer USD, but also a falling carry trade.
How far this can be pushed is unknown, but I suspect that if the panic selling resumes, not only the exotics but the majors as well will once again be subject to a beating.
But who knows, maybe the rules have changed.
For us there is only one rule: be ready to adapt to whatever comes.
---------------
So much for the theoretical side.
For the practical TA application:
Several pairs have "gotten ahead of themselves", especially AUDUSD and EURJPY.
The carry and exotics have retraced back up to mostly .618 - .786 levels on their charts and some, like NZDUSD, also now fit a bigger ABC corrective pattern. This puts risk for a continuation back on the table, as these are the prime "start to sell the big rally" price levels back up here.
On weekly USDJPY we have made a doji at the formerly lost TL:
http://img170.imageshack.us/img170/3...09007tlbp3.gif
We have had signs of stalling and exhaustion on NZDUSD and AUDUSD, as well.
NZDUSD looks set to retest 0.7250 after possibly finishing an ABC off the low made during the unwind and on loss of the 0.7250 level risks downside acceleration.
http://img215.imageshack.us/img215/2...9007bigkh3.gif
Further down the road NZDUSD's lows at the "neckline" with the 0.6650-0.6900 area being a last resort would be critical for keeping us in this upper area of 0.6600-0.8000.
I could go on and on and on about AUDUSD and all the other xxxJPY pairs, but fact is all of them are at critical levels which to people looking to short must look very tempting indeed. If we are to go down again hard at all, these are the places to start with almost on every pair.
And as for our most interesting candidate, the DOW:
We have had our "double intervention" pushes and we've gotten back to right near our all time highs.
Now the question is: continuation or reversal?
http://img444.imageshack.us/img444/1...ausingaaj8.gif
As with the carry and exotics, we are very much in a "now or never" scenario, where this and the next 1-2 weeks should show us what's what.
Some further musings:
A lot of people seem to have taken the emergency measures not as a reassurance, but as a sign that there is potential for genuine trouble in the machinery that once was the robust american economy.
There have been big shocks in both the NFP as well as other areas, but we must not forget that all the folks getting foreclosed, losing house and home and their credit eligibilities and their financial options will not only drop out as super-consumers, but they will be high visibility flashing highlights for anyone in their proximity and emphasized through media and surroundings, thus perhaps causing more fear to over-spend and perhaps for the first time changing the carefree "everyone's doing it so why shouldn't we" overspending and debt based living standard that has become the american way of life for a shockingly large amount of people.
Just to illustrate: spending curves have shown growth in excess of 20-30% increase, whereas real world net income has wavered sideways or only slightly increased. Simple math dictates you can only spend what you have - unless you bring in the credit companies into the equations OR go into savings. And your savings in turn will eventually be used up at some point.
And I believe there is or will be a certain "deadpoint" - there won't be shiftable debt from one credit card to the next forever. Alternatively, if we get a stronger savings emphasis like the curve below shows we might be already shaping up to, then that also should mean potential for a more "squirrely" attitude vs the rampant spending the economy has gotten used to.
(What is however odd is that there are also reports of a corrected savings curve which claim that there has actually already been an increased trend towards saving vs spending...maybe I'm just suffering from bad data sources here or maybe someone more versed in this could help me out. But either way)
Revised savings curve:
http://businomics.typepad.com/photos...02/savings.jpg
There's also a historical housing - spending correlation(this is "old data" from the eighties to 2006, but I believe the point of the correlation is still made well):
http://bigpicture.typepad.com/commen...k_spending.png
We've already begun pushing around domino stones, question now is how many, which and where they are going to start collapsing first and how much collateral damage our dear collateral will cause.
-------------------------------------------------
If any mod thinks this should be put under "news" then by all means...it's all 1:1 transferrable. Just let me know...
So I thought this place might make for a much nicer ridicule target-practice ;p
Faithful James16 thread readers will already know about my constant "oh oh but the DJI could be just about to crash again" doom-and-glooming, and I tried to write a "wannabe serious" article about it as well...
Comments from some FA folks as well as others are welcome, if only about the language and writing style, let alone the content.
----------------------
Is "The Great Unwind: Part II" upon us?
First, let us look back a bit...and in my case, not from an analysts/FA, but from a chart perspective.
I'm a bit torn between "Market Insights" and "TA", but really TA is always both.
Back in July, when we were just peaking out on the DJI futures at 14100 and the DJI at 14000 figures, headlines reading "new record high" and whatnot - giant red warning signs were flashing on the charts.
From overenthused rallies we were suddenly plopped into a sideways lull and dojis started to appear - right at all time highs, right at a conveniently simple, nice round number - the great 14k.
This alone may not have been that terrible, but rumorings of the mortgage crisis were starting to amass and when people started to realize what was what, the stocks got hit and got hit bad, and the DJI, S&P, carry trade(xxxJPY) and the exotics(AUDUSD, NZDUSD) took big, bit hits.
8 weeks have passed, and now we have spent this time wondering: was this it?
Are we back to business as usual?
Has the nice wizard magicked all our troubles away with a nice, swift 50bps cut?
No.
Banks and hedge funds are reporting collapses in their portfolios every day, earnings warnings and a vast unknown extent of "hidden", unrealized, unpublished "toxic waste" remain.
This is our scenario.
So nothing has really changed - or has it?
I am seeing signs on the charts that paint a scenario in which - unlike the last time, in which the USD rallied - there might a slight shift in the way things are "done" - or perhaps it is just a beginning feint.
The cores, USDCHF and USDJPY, have begun a steep and ugly descent, seemingly alone, and are dragging the xxxCHF and xxxJPY crosses with them.
This is creating the paradox of a softer USD, but also a falling carry trade.
How far this can be pushed is unknown, but I suspect that if the panic selling resumes, not only the exotics but the majors as well will once again be subject to a beating.
But who knows, maybe the rules have changed.
For us there is only one rule: be ready to adapt to whatever comes.
---------------
So much for the theoretical side.
For the practical TA application:
Several pairs have "gotten ahead of themselves", especially AUDUSD and EURJPY.
The carry and exotics have retraced back up to mostly .618 - .786 levels on their charts and some, like NZDUSD, also now fit a bigger ABC corrective pattern. This puts risk for a continuation back on the table, as these are the prime "start to sell the big rally" price levels back up here.
On weekly USDJPY we have made a doji at the formerly lost TL:
http://img170.imageshack.us/img170/3...09007tlbp3.gif
We have had signs of stalling and exhaustion on NZDUSD and AUDUSD, as well.
NZDUSD looks set to retest 0.7250 after possibly finishing an ABC off the low made during the unwind and on loss of the 0.7250 level risks downside acceleration.
http://img215.imageshack.us/img215/2...9007bigkh3.gif
Further down the road NZDUSD's lows at the "neckline" with the 0.6650-0.6900 area being a last resort would be critical for keeping us in this upper area of 0.6600-0.8000.
I could go on and on and on about AUDUSD and all the other xxxJPY pairs, but fact is all of them are at critical levels which to people looking to short must look very tempting indeed. If we are to go down again hard at all, these are the places to start with almost on every pair.
And as for our most interesting candidate, the DOW:
We have had our "double intervention" pushes and we've gotten back to right near our all time highs.
Now the question is: continuation or reversal?
http://img444.imageshack.us/img444/1...ausingaaj8.gif
As with the carry and exotics, we are very much in a "now or never" scenario, where this and the next 1-2 weeks should show us what's what.
Some further musings:
A lot of people seem to have taken the emergency measures not as a reassurance, but as a sign that there is potential for genuine trouble in the machinery that once was the robust american economy.
There have been big shocks in both the NFP as well as other areas, but we must not forget that all the folks getting foreclosed, losing house and home and their credit eligibilities and their financial options will not only drop out as super-consumers, but they will be high visibility flashing highlights for anyone in their proximity and emphasized through media and surroundings, thus perhaps causing more fear to over-spend and perhaps for the first time changing the carefree "everyone's doing it so why shouldn't we" overspending and debt based living standard that has become the american way of life for a shockingly large amount of people.
Just to illustrate: spending curves have shown growth in excess of 20-30% increase, whereas real world net income has wavered sideways or only slightly increased. Simple math dictates you can only spend what you have - unless you bring in the credit companies into the equations OR go into savings. And your savings in turn will eventually be used up at some point.
And I believe there is or will be a certain "deadpoint" - there won't be shiftable debt from one credit card to the next forever. Alternatively, if we get a stronger savings emphasis like the curve below shows we might be already shaping up to, then that also should mean potential for a more "squirrely" attitude vs the rampant spending the economy has gotten used to.
(What is however odd is that there are also reports of a corrected savings curve which claim that there has actually already been an increased trend towards saving vs spending...maybe I'm just suffering from bad data sources here or maybe someone more versed in this could help me out. But either way)
Revised savings curve:
http://businomics.typepad.com/photos...02/savings.jpg
There's also a historical housing - spending correlation(this is "old data" from the eighties to 2006, but I believe the point of the correlation is still made well):
http://bigpicture.typepad.com/commen...k_spending.png
We've already begun pushing around domino stones, question now is how many, which and where they are going to start collapsing first and how much collateral damage our dear collateral will cause.
-------------------------------------------------
If any mod thinks this should be put under "news" then by all means...it's all 1:1 transferrable. Just let me know...
Trust price. Know yourself.