Week In Review #23, 2010

¹²Week In Review #23, 2010

By Bill Cara | 7 June 2010

Morning Call [6:26am ET] Early returns this morning are indicating relative calm in the global capital markets. Losses to begin the sessions in various European bourses are being pared and the Euro future contract, which had reached a low of 1.1875 at about 10pm ET, has managed to pull itself all the way to 1.1984 as at 6:24am ET. But there has been no resolution whatsoever of the considerable angst traders have regarding the European debt markets. So, for now, at least, no Black Monday. I'll report back if I see storm clouds returning.

As I see it there are two alternative scenarios: (i) the G-20 monetary authorities this weekend may have decided to forestall a crash that will only happen later anyway— just like the Europeans thought they had smashed the Euro short-sellers a couple weeks ago, and we laughed. The S&P could reach back to a high of 1130-1150, and then plummet through the summer to possibly the ultimate worst case bottom around say 880 (or lower), or (ii) the G-20 could do us all a favor for once and stand aside and let the free markets work it out, in which case, I think the selling will follow through to a higher cycle bottom of say 950 (or lower), before reversing from Bear to Bull.

I added the words "or lower" because nobody, including the European politicians, monetary authorities or leading economists really know the impact a shake-out and possible termination of the Euro would have on equity prices or the economic cycle there or in America or the Far East, whose economies will be upset by this crisis. We have arrived at the single most interesting day in markets since I started blogging six years ago. I'll tell you now what to look for.

If the recent equity market sell-off is to stop, the following prices will have to happen: crashing bonds, crashing USD, Weekly RSI-7's on the major major indexes must start lifting immediately, and the 200-day Moving Averages of silver, platinum and palladium must hold right here. If the USD and Treasury Bond prices lift and silver, platinum and palladium drop on Monday, then there will be no reversal early in the week.

If prices go like this, then I expect the USD and Treasury Bond prices to soar into a spike top, driving the S&P 500 to a cycle bottom, soon, at about 950, followed by higher equity prices accompanied by increased volume as traders move capital from the sidelines into equity and commodity markets. Here is an interesting chart that I'd like everybody to pay attention to over the next few days. The top graph is the one-minute chart of $SPX (S&P 500 future) and the bottom is the Full Stochastic. Now, except for the final 150 seconds of trading, the Stochastic gave a pretty close image of the $SPX.


Click Here, or on the image, to see a larger, undistorted image.

Aha, I didn't say the stochastic was the Stochastic for the $SPX. No, in fact the Stochastic is of the Canadian Dollar (aka Loonie or Loon). Except for the last two or three minutes, every time the Cdn Dollar dropped, the $SPX dropped. Every time it gained; the $SPX gained.

So, this is to be expected: the Cdn Dollar rises and falls with Crude Oil (and commodity prices) and against the USD. That means you can watch the Loonie on Monday as another "tell". As the Loon flies, so will equities and commodities.

A week ago, I made these comments,

"This week, the random noise along with the hype orchestrated by vested interests reached a crescendo… Don't count me among them, but there are some who now believe the worst has passed and it will be blue skies ahead for the next couple years… When you start to look at the capital market as a system like any in nature, where prices ebb and flow like ocean tides, impacted by wind and waves, and so forth, all inter-related, you'll try to synchronize your mind and your breathing. And, when prices get as volatile as they are today, you have to learn how to relax and not let emotion get in the way of good decision-making… Easier said than done. The instant that Fitch released their decision on Spain, your positions either gained or lost, some in the extreme, and that's tough for most people to handle."

Just remember; a lot of you are holding cash. You have not been tricked into "investing" in equities except for a small percent here and there. You know that Humungous Bank & Broker (HB&B) has failed you and will soon be reconstructed by the legislators and monetary authorities, and that markets will stabilize once again, after the Bull-Bear cycle plays out.

You possibly are getting more confident when you see prices come to you, that buying at the bottom of a cycle [[and selling at the top: normxxx]], much lower than the average price professional money managers have paid [[and gaining much more than these so-called professionals at the top: normxxx]], will pay rewards in the form of a healthy Total Return on Invested Capital commensurate with the risks you have taken. You do that once or twice; you'll become a player. From that point on, nobody will tell you how the market works and what stocks to buy. You'll be able to figure it out on your own.

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Normxxx    
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