Monday, July 23, 2012

Put Your Seatbelts On, It’s About To Get Bumpy!

It was just about a year ago today when the S&P was sitting at fresh highs and everyone was enjoying a rather upbeat summer. It was a nice summer, the markets were calm, and there was a surreal sense of optimism. Then, in the matter of a few days, things got real ugly, real quickly.

Well, it doesn’t seem like too much has changed since then. We’ve had mixed earnings reports, ever-evolving worries in Europe, and the always looming fiscal mess in the U.S. Once again, are we in the calm before the storm?

It looks like things in Europe may start to heat up again. Riots turned violent again in Spain as protestors took to the street over austerity measures. With seemingly no resolution, a sinking tourism industry in the PIGS, and a typically hot summer August on its way, all signs point to further turmoil.

Technically, we’re currently seeing a number of bearish indicators setting up in the S&P and other markets. First, on the weekly chart of the SP500 Futures we can see what appears to be a bear flag formation developing. Note the recent rise in price since the beginning of June on decreasing volume.

Weekly SP500 Futures Chart Patterns

Chart Pattern Trading

Chart Pattern Trading

Daily Chart Elliott Wave Count For SP500

A second look at the S&P daily illustrates a down trend and 5 wave count bounce in the market, both are currently pointing to lower prices.

  • Completion of two intermediate cycles within longer term 5 wave pattern
  • Downwards wave one from April until beginning of June followed by wave 2 correction from June until present.

The wave two correction typically proceeds the longest wave, wave three, which is pointing towards a large move down (Note that in the first shorter term cycle the downwards wave three was the longest by far. We expect the same to be repeated in the longer term cycle.)

Elliott Wave Theory Chart Pattern Trading

Elliott Wave Theory Chart Pattern Trading

SP500 BIG PICTURE Wave Count

A look at the longer term view once again using the weekly chart, again supports our argument for a major correction. We have just completed a 5 wave pattern since the 2009 lows, and it is looking more like a big pull back is due. Remember most major trends end after the fifth wave.

Stock Market Elliott Wave Count Chart Pattern Trading

Stock Market Elliott Wave Count Chart Pattern Trading

Copper Weekly Chart Patterns

If we take a look at the copper ETF, “JJC”, we are provided with further justification. Copper is often referred to as “Dr.Copper” due to its industrial application and is known to be a leading indicator for equity markets. Copper has significantly underperformed equity markets and is likely leading the next move down. A look at the weekly chart which points to a rather dismal outlook. There is a major head and shoulder patterns developing.

Copper Chart Pattern Trading

Copper Chart Pattern Trading

Major Market Pattern Analysis Conclusion:

Last summer turn into a bloodbath with nothing but red candlesticks taking stocks and commodities sharply lower. If you haven’t already, it’s time to lock in some profits. Short, intermediate, and long term cycles are pointing down, and the increasingly bearish technical developments cannot be ignored. We’ll be looking at entering multiple shorts potentially in the very near future once/if setups present themselves. Buckle up and stay tune for more…

Silver Market Update / By Clive Maund / July 22, 2012

Silver investors and speculators are amongst the manic-depressive you can possibly find in the investment world. When they are playing maximum credits on the slots and passing round boxes of cuban cigars and taking out massive loans to buy Ferraris and Lambos you know it’s time to watch out. When they retreat into the shadows, only coming out to hurl themselves off bridges and other tall structures, mumbling about the “cartel” as they plummet earthwards, you know it’s getting time to buy – and that is the situation we now find ourselves in. In this update we are going to examine evidence which suggests that, despite the fragile looking price pattern, silver is going to turn surprisingly strong in short order, or alternatively, if it does break down, it turns out to be a false move that is swiftly followed by a dramatic recovery.

On its 3-year chart we can see that silver has been severely testing its key support at and above its September and December lows in recent weeks, and with its falling moving averages bearing down on the price overhead, and this being the 3rd major test of this key support, clearly there is some risk that it could crash it and plunge, yet while this is certainly true, various indicators are telling a story of gathering internal strength, and we will examine these a little later.


Sprott – The Frightening Black Swan Nobody Is Talking About / July 21, 2012

Today billionaire Eric Sprott spoke with King World News about his greatest fear. Sprott literally shocked KWN by saying, “My biggest black swan, Eric, is that I think I’ll be right one day. My worry is that one day they just shut everything down.” Sprott, who is Chairman of Sprott Asset Management, also added, “They (central planners) say, ‘You know what, we just can’t keep this up anymore, the whole Ponzi (scheme), we just can’t do it and we shut it down.’”

Sprott went on to say that all of the markets would then “freeze.” But first, here is what he had to say about the ongoing ciris in Europe: “It’s beyond the ability of governments to deal with all of these weak countries. There are only one of two answers: Yes, someone could print as much money as they want. Maybe they could print $5 trillion and say, ‘We’ll back up all of the banking systems.’”

Eric Sprott continues:

“And then one could maybe say the problem is solved. Of course the problem is, if they print $5 trillion, everyone knows they can’t back it up with anything. Then you will lose confidence in the currency and you will go into hyperinflation because people will realize that real things are safer than paper things, including bonds and stocks and things like that.

So there are only two choices, they’ve got to print or there are going to be some defaults, which is the natural offspring of a Minsky moment….


The Charles Schwab Corporation (NYSE: SCHW)

The Charles Schwab Corporation, through its subsidiaries, provides securities brokerage, banking, and related financial services to individuals and institutional clients. It offers various brokerage products and services comprising brokerage accounts with check-writing features, debit card, and billpay; individual retirement accounts; retirement plans for small to large businesses; college savings accounts; designated brokerage accounts; equity incentive plan accounts; and margin loans, as well as access to fixed income securities, equity and debt offerings, options, and futures. The company also provides various banking products and services, including checking accounts linked to brokerage accounts, savings accounts, certificates of deposit, demand deposit accounts, first mortgages, home equity lines of credit, and personal loans collateralized by securities. It operates primarily in the United States, the United Kingdom, and Hong Kong.

To review Schwab's stock, please take a look at the 1-year chart of SCHW (The Charles Schwab Corporation) below with my added notations:

SCHW has created a couple of short-term price levels over the last (2) months. First, SCHW has formed a clear resistance level at $13 (red). In addition, the stock has also been forming an uptrending support level (green), which it has now tested (3) different times. These two levels combined have SCHW stuck within a common chart pattern known as an Ascending Triangle that will eventually have to break one way or another.

The Tale of the Tape: SCHW is currently stuck between its uptrending support and the $13 resistance. A long trade could be made on a break above $13. On the other side, you could enter a short trade on SCHW if the stock breaks below the uptrending support level.

David Morgan INTERVIEW–SILVER: Are you in? Sprott & the Chinese are!

Chart of the Day - Canadian National Railway Company (CNI)

The "Chart of the Day" is Canadian National Railway Company (CNI), which showed up on Thursday's Barchart "All-Time High" list. CNI on Thursday posted a new all-time high of $88.57 and closed up +1.32%. TrendSpotter has been long CNI since June 20 at $85.24. In recent news, JPMorgan Chase on July 2 said it expects the major U.S. railroad companies to report higher than expected Q2 EPS as their volume numbers remain steady while they are expected to benefit significantly from lower fuel prices. Canadian National Railway Company, with a market cap of $37.2 billion, operates the larger of Canada's two principal railroads and the only coast-to-coast railroad network in North America. The company's rail network serves major ports in Canada and includes strategic connections to the United States through the Chicago gateway, Detroit and other major cities.


US Weekly Economic Calendar

time (et) report period Actual forecast previous
8:30 am Chicago Fed national activity index June -- -0.45
8:58 am Markit flash PMI July -- 52.5
10 am FHFA home prices May -- 0.8%
10 am New home sales June
375,000 369,000
8:30 am Weekly jobless claims 7-21 380,000 386,000
8:30 am Durable goods orders June 0.6% 1.3%
10 am Pending home sales June -- 5.9%
8:30 am GDP Q2
1.3% 1.9%
9:55 am UMich consumer sentiment July 72.0 72.0