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S&P500 Expert Lounge Update – February 15, 2017

Good morning everyone,

These are key timing for today: 10:00AMEST,  2:30PMEST

These are key MA levels:  5EMA 2325, 10DMA 2307,  20DMA 2293  50DMA 2274, 100DMA 2215, 200DMA 2172

These are key Fib Levels: 2338, 2322, 2213

These are key primary and intermediate: 2275(intermediate minor), 2254(intermediate minor)

Here is today's market look at the S&P 500 for Wednesday, February 15, 2017

With red, magenta and white all viable MSP options up to this point 10:00AMEST timing will be important discerning which is the most probable.  We have a health dose of economic reality today with the Consumer Price Index, Retail Sales and Empire State Manufacturing Survey at 8:30AMEST, Industrial Production at 9:15AMEST, Atlata Fed Business Inflation Expectations, Business Inventories, and Housing Market Index at 10:00AMEST, and lastly the EIA Petroleum Status Report at 10:30AMEST.

MSP

 

The technical picture still continues its relentless climb higher maintaining the most extreme of rising support and successfully backtesting broadening resistance.  On a break of the extreme rising support, another test of broadening support would be expected at the very least.  Good luck today.

Primary and Intermediate Levels

Breadth Continues to Breakdown and Ratio in Acceleration Pattern

In a further deterioration of an already unhealthy situation, S&P500 Equal-Weight is continuing to weaken against the S&P500 Capitalization Weighted Index. This situation tends to have longer-term and short-term impacts. The shorter-term impacts are likely because we are in what is called a "running-correction" on the red ratio line. This suggests an extension and intensification of the current trend towards breadth deterioration near-term. Over the longer-term the broader impacts are likely to last for a while as this intensifying health issue for the market will be a large impediment to sustained progress for the markets for a significant period of time.

Equal-weight S&P500 Analysis Compared to Cap Weighted S&P500

Equal-weight S&P500 Analysis Compared to Cap Weighted S&P500

An Overview of the Markets and Projections

While many are likely to have been turning their bearishness into bullishness over the last week or so, having confused bearishness and the potential for new lows in September where bullishness was warranted into November with of upward probability. Currently, we are sitting in a key timing window for the S&P500 as we have discussed recently and have high probabilities of a turn either being in as of the beginning of this timing window last week or possibly into this week (ideally early).

While we did expect back and fill earlier in the month of October from the 2140 area, the primary scenario expected strength into November. However, running corrections reduced the pullbacks that should have appeared early in the month to trivial events. Even though a correction/consolidation was registered on the charts, this correction period was classified as a running correction. A running correction is a pattern in which the impetus for market participants to interact with the market is so strong in one particular direction that what normally would be a price retracement pattern or consolidation becomes a consolidation with direction. Meaning, that instead of a consolidation pulling back it actually grinds upwards during the correction process when occurring in an upward market and then breaks out. These patterns are prone to very strong reactions in that many people attempt to short what looks like a breakdown that actually never occurs and immediately runs against them - thus trapping as many participants as possible. These patterns are powerful in up markets and in down markets and are occurring increasingly as greater intervention in markets occurs.

Given this, market structure projection indicated a pronounced period of upward bias throughout October and left translated MSP precisely indicated the previous turns. The market has been leading (which we refer to as left translation) the normal market structure projections. We represent this in the charts with the cyan plot showing the left translated projection which has coincided very well with activity in the markets over the last 2 1/2 to 3 months.

Moreover, market internals and other symptoms of ill health abound, regardless of hyperbole from analysts or the Fed - it appears things are not healthy. Preceding the August crash, the equal weighted S&P 500 index underperformed dramatically. This index has underperformed even more dramatically during this bounce. It is this analyst's interpretation that this is a sign of significant stress. The stress will need to be resolved, and if history is a guide, the resolution is likely to be stronger and quite likely more persistent than our August episode.

Note, the market structure projection for commodities and bond markets. These projections suggest equally interesting timing and also contradict the prevailing perception in the markets as to what are reasonable expectations near-term and even medium-term. It appears that there is a quite marked probability of a buy-the-news reaction in bonds combined with the sell-the-news reaction in equities and latent dollars strength to keep pressure overall on the risks markets. It also appears that the dollar may have a significant inflection point in December to early January, which may, in fact, be a larger sell-the-news type event.

Accumulation index components

Accumulation index components

S&P 500 Index - equal weight vs. capitalization weight performance

S&P 500 Index - equal weight vs. capitalization weight performance

S&P 500 market structure projection

S&P 500 market structure projection

US treasury market structure projection

US treasury market structure projection

Gold market structure projection

Gold market structure projection

US dollar market structure projection

US dollar market structure projection

Oil market structure projection

Oil market structure projection

Updated Daily/Weekly Market Structure Projections

Ready Or Not Inflection Point Approaches as Central Banks Seek to Destroy Bear Paticipation

It has indeed turned out to be an interesting week, with the Fed meeting causing fireworks as should be expected. Clearly, this was a coordinated effort, as posted in the MCM lounge earlier this week. The Fed has sought to cushion "changing of its wording or its intentions" with coordinated actions and hyperbole from other central banks. This is the type of behavior exhibited last year when, in seeking to prevent the per Bernake taper tantrum reaction that had occurred previously, they coordinated with the Bank of Japan, the Bank of England and the ECB to indicate or to actually trigger liquidity programs or accommodation. That sought to offset the impact of the Federal Reserve producing accommodation or leverage. This year has been exactly the same.

Clearly, the impacts of a Fed rate hike can set off a firestorm. There are tremendous risks to the creation of as much leverage as been irresponsibly created and to changing the cycle with reference to this leverage.

The primary risk being that the Fed is actually not in control of interest rates, after all and that a shift can take interest rates into their own direction, regardless of Fed desires. In order to make the Fed policy morph into an illusion of rational deduction and analysis based on data, and to facilitate the appearance of markets interpreting a change in policy as an indication of a sound economic environment, it is clear that the central banks were up to old tricks using unlimited liquidity to purchase risk assets on full bore yesterday. This appears to be yet another tactic "doomed to failure" of these irrational, inappropriate and highly risky policies. Indeed, the actions by the central banks appear to have sought to shake bearish resolve and encourage bullish speculation - and these conditions can obviously be seen in the risk markets presently.

The chart below is the market structure projection chart that we have been publishing for months. It has provided a good guide for the general movements of the markets. Recently is become clear that the markets which sometimes will move plus or minus a week to these projections have consistently been leading about a week since roughly May/June. In evaluating this behavior, we are presenting a chart which shows market structure projection both as it has been plotted and published on these pages - the dark magenta line, and also the same market structure projection plot shown offset by one week. As can be seen, especially in the near-term, these projections have been prescient and accurate. We are now entering timing tolerances shown by the boxed areas on the chart below that are probably for an inflection point. This coming inflection point is a very serious inflection point. Its significance implies a turn from up to down in the markets for the next five months or so - with weakness biasing into February and March next year.

Updated Daily/Weekly Market Structure Projections

Updated Daily/Weekly Market Structure Projections

EURO Broken, Breaking and Broke – Greece Plays Its Hand

EURO Broken, Breaking and  Broke

EURO Broken, Breaking, and Broke

The ECB thought they could back the Greek Government and leadership into a corner with no other choice than an insipid self-destruction that would have left them, culpable, maligned and threatened by their own nation. Soon to be replaced by a trinket government installed at the whim of a few EURO bureaucrats (or Neo-Nazis - take your pick).

Greece played it about as well as possible. Knowing that the objective of ECB and Germany was to make sure that no other political administration in the crumbling European Union would ever be willing to commit such an act of defiance and humiliation against central planners. They waited till after markets had closed to announce a referendum and to "stick the finger" to the central planners (see ECB & EU Strategy – Political, Not Practical). During the afternoon on Friday, Greece made overtures but just after the close of the markets they gave no wriggle room to a central bank that thought it owned the outcome of the situation.

This era, characterized by the senseless debt pumping by central planning bureaucrats all over the world, has destroyed many lives and is presently in the process of destroying millions more - which will inevitably be the driving force of more complex conflicts between nations. The fact is that, via side deals and convoluted transactions with the US FED, virtually all sovereign central banks operate US FED policy by proxy. Almost all of them are precariously close to losing control of the leverage they have been so desperate to pretend is a catalyst to growth when in fact it is clearly the opposite (see these charts). IMF and BIS have been projecting wild fantasies regarding Greek growth for years. As it appears, these delusions are influenced by blind deference to the concept that something can be created out of nothing by a few bankers with a "control-P" key. Sadly this is not the situation as so clearly shown in IMAGINARY NUMBERS. With so little real capital available and so much leverage, even a little disruption can have grave implications. The next months and weeks will likely reveal more regarding leverage (more accurately deleveraging) implications.

Leverage - Where are we now?

Leverage - Where are we now?

These crises arising all over the world may be a catharsis for people in the end, but it will be one of the most painful paths possible for rejuvenation. From this perspective, Greece knows they are in pain, it can not get much more intense for them. What you can not pay for does not get paid - so, there is somewhat of a limit. BUT IT CAN GET VERY PAINFUL for debt-pushing central-planners. The implications of huge and contagious CDS & derivatives losses, financial instability and challenges that are all pointed at the feet and minds of central planners (as opposed to indebted governments) is likely to be a trend.

If there is one lesson from Greece, it is while the drug is offered - take it. When the drug causes ill health and death, for the history books, make sure its manufacturers and pushers get the blame.