Posts

Yellen - Why Is It Not Working?

FED Speak, FED Hike, FED Squawk – Some Disccusion

Yesterday we posted these comments regarding the FED:

Another anecdotal issue is that the FED is due to report their unbelievably tortured analysis and process geared to raise interest rates by only 25 basis points. However, at this point the FED credibility is pretty tattered and IF they raise interest rates they will be viewed as non-data dependent to the contrary of their propaganda. If they do not raise interest rates they will be show that the verity of their analysis and policies is likely sorely lacking. In either case, the best the FED can do is damage their credibility or damage it more. Not particularly wonderful outcomes and for the markets this could imply that no matter what the FED does will be received negatively.

Yellen - Why Is It Not Working?

Yellen?

It is worth noting that if things get too challenging in the markets, the Fed may decide not only "no hike" but QE and effectively "rate cut". This woul be data driven of course and all in the span of less than 2 weeks of data. The question is would any new QE solve the problem? While there is no reason to doubt that a rally on some QE announcement would occur, the problem is that we are facing liquidations of malinvestments. As in 2010, after the initial rally in equities, QE funds and liquidity sought an avenue for allocation - the chosen allocation was not previous dubious products - and did not immediately go into equities or bonds - it went into commodities.  This caused dislocation in the commodities markets with many commodities rising hundreds of percent in a very short time - which in turn caused the "Arab Spring" (which was no "spring" but rather a revolt by starving citizens) as many poor and middle-class Middle Eastern people were unable to afford necessities of rice and other foods. They were forced to choose between buying food or paying rent. Similarly, were sitting in the situation in which junk bonds need to be liquidated and QE liquidity would not be allocated easily to junk at this time. Therefore, the only option for the Fed, which this analyst feels would further damage their credibility, would be for the Fed to directly purchase declining assets and junk bonds. Certainly, the FED can purchase junk bonds and represent them on a portfolio at par as they have done with many of the bankrupt entity debt that that they purchased in 2008 and 2009 (Maiden Lane III Portfolio) - but this does not inspire confidence.

So, in summary, it appears that if damage becomes pronounced to the equity and debt markets now or int he future theFed may need to attempt to directly arrest it. However, their tools are not precise and not effective. Moreover, they would be seeing as hypocritical because how could they not see this coming, and, in fact, want to do a rate hike just before major damage to bond and equity markets would occur. Either way, the situation as it seems to this analyst, is a no-win outcome for the Fed, no matter what they do. The best probable scenario that likely exists is that the Fed just buys every asset that is going down and attempts to arrest decline by increasing the balance sheet further and also deteriorating its quality.

Is it really possible, that if these options are even on the table? And would they work or make a difference for more than a short time?

Weekly Cycles Are Just Turning – Needing Time to Resolve

Last week was a tough week for risk assets as expected. The next few days are key as ideally timing for a bounce exists this coming week it is possible, however, this cycle inflection point can right translate and a turn from down to up may require more time. The reason for this is that we are now in the acceleration phase of double downward running correction breakouts. On a conservative basis, timing should be for Tuesday or Wednesday for a low. However a caveat implies that those "short" should consider trailing stops down rather than exiting shorts on any further weakness. Below is a chart of the weekly cycles - the turn has only just begun as per the rejection of the magenta resistance cycle - additionally, the cycle direction study is only just now beginning its reversal downwards and will require, at a minimum, a few weeks to reach the zero bound (See [1] and [2] on the chart). There will likely be bounces within any such move however, it appears that the market can easily reach the running correction targets of 1,940 or 1,800.

Another anecdotal issue is that the FED is due to report their unbelievably tortured analysis and process geared to raise interest rates by only 25 basis points. However, at this point the FED credibility is pretty tattered and IF they raise interest rates they will be viewed as non-data dependent to the contrary of their propaganda. If they do not raise interest rates they will be show that the verity of their analysis and policies is likely sorely lacking. In either case, the best the FED can do is damage their credibility or damage it more. Not particularly wonderful outcomes and for the markets this could imply that no matter what the FED does will be received negatively.

Weekly Cycles

Weekly Cycles

While we do not have sufficient data to build complete MSP on the HIGH YIELD asset class, there are some worthwhile observations which could be troublesome. While we are not comfortable with MSP setup for HighYield enough to publish it - here are some general observations: market structure projection on a broad basis pointed to normal probabilities starting last week into the Christmas time as among the most positive of the year. This is interesting, because when something deviates significantly from MSP then it's often likely something serious is going on. So far. is that is appears people were attempting to be set up for this potential strong upward move for HighYield and are presently getting stopped out. When people get trapped in trades and the market does not cooperate, things can often go as strongly opposite as they would be expected via MSP to go based on probability because people are caught by surprise. Technically, the MSP setup bullish for HighYield into Christmas, however, IF we have inverted and turned buyers into trapped sellers hungry to get out - then it is possible weakness can continue in HighYield until Christmas. We currently appear to be contradicting the probability projections of MSP for strength for HighYield - this could be A BIG PROBLEM if participants become trapped.

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

Updated Projections and Detail Regarding MSP

In this article, we publish updates to the various MSP charts presented on these pages recently. As mentioned previously, there was a bug fix which corrected the significant misplacement of certain MSP points under certain conditions. The comparison and analysis demonstrating this problem is shown below at the bottom of this article. The result of this discrepancy is that the incorrect MSP did not track, but the correct MSP tract as well as one could possibly want. With that, the corrected MSP is showing an inflection point of this week for the S&P 500. Not only that it is showing inflection points potentially building up for the DAX and the bond market. The bond market rally seems to have been a very foreign concept. However, market structure projection got it right so far. Keep in mind, that the most sophisticated work we have done related to the equity indexes and market structure projection is being expanded to many other products - this is a process.

One of the interesting things is that copper and gold, which had a high pressure for a turn in November have not tracked and diverged significantly from their projected behavior. This indicates that something else may be going on, and caution is warranted. In either case, the high probability area for gold to launch a sustained rally appears likely in January.

S&P500 Market Structure Projection

S&P500 Market Structure Projection

US Bonds Market structure Projection

US Bonds Market structure Projection

DAX Market Structure Projection

DAX Market Structure Projection

Detailed comparison of Incorrect MSP versus corrected bug fix

Detailed comparison of incorrect MSP versus corrected bug fix

Inflection Points Expected This Week – As Market Operates In Its BEAR MARKET CYCLES

This weekend we will present a host of unique charts and a detailed discussion of market structure projection, which had a software issue related to the end of November timing for a low - which actually due to a rare condition forward translated erroneously skipping the correct mapping for the week so the 16th. We identified this early last week and updated members, as soon as it became clear that future vs. historical MSP was not agreeing. This bug/error has been fixed and will be discussed in a separate post. However, inflection points are expected imminently if not already in.

The cycle study shown in the large chart below (you will need to maximize or zoom into the chart to see the details) is a robust and proprietary analysis that we use in our proprietary trading systems. The objective of this study is to devine the direction and timing of market movement by backing out its natural oscillations - or waves. As can be seen in the chart below, the red and pale cyan studies at the bottom of this chart show the larger directional move in the markets. They show when a market is trending by magnetizing to the upper and lower bounds. This means the 100 and 0 levels. Persistent travel at these extreme bounds indicates a trending market as well as the direction of the trend. When markets attempt to change course, a period of questioning is required. These market questions show up as volatility or could be called CHOP. We are currently in a pronounced stretch of zero bound attention which usually occurs once a change direction has successfully occurred. These tools defined the change of direction in June and July this year from UP to DOWN and likely into a bear market. They could not have had better timing. The objective of these analyzes is non-latent and simple, we think that this has been accomplished in the chart we publish on this page.

Additionally, there is another condition occurring similarly to 2007. While it is not our objective to show systematic trading as an indicator. The RVS is an old and established trading system that has unique qualities currently potentially acting a bit like a larger-term indictor. RVS trades only with what it feels is the prevailing trend. During the last five years. While it has had many losing individual trade elements. It has scarcely had a losing model position since 2009 and its releases in 2010 and 2012. This means that every position, including all the entries required to build a position on an NET-BASIS, resulted in a profit this makes the system stable and persistent which is why we trust it and have not changed anything about it in years. Due to the characteristic of the system's trading only in what it perceives to be the prevailing market direction it believes most probable...and its ability to trade profitably and consistently through whipsaws that usually accompany changes in direction in the market, this system is now setting up a pattern almost identical to 2007. Within the cycle analysis, we are presently likely in initiating bear markets, similar to 2007. As such, RVS believed we were in a new bear market starting in July and profitably shorted (albeit small) the September and October bounces. The reaction of the markets since then has created the perception that the Bull-Is-Back. This can be seen via the many Elliott wave counts and technical analysis calling for new highs, dramatic or astronomical new highs. We believe that most of this analysis is founded in an emotional basis and lacking reliable or factual data.  This reaction the markets also has so far attempted to convince RVS that longs are the preferred trades. If the expected inflection points play out and the cycle directional trend analysis is accurate, this phase for RVS should become a similar whipsaw as in 2007 and regardless of if markets make new highs (as in 2007)  the system should soon revert to a preferred bias towards short risk.

RVS & Market Cycle Study

RVS & Market Cycle Study

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

A Chart to Consider…A Study of Price Sustainability

Below, is an interesting chart of a proprietary study of price, sustainability. It is based upon the analysis of prices at which a large majority of technical indicators swing to an unsustainable position for market participants. The cases indicated are calculation of projected prices at which a large amount of popular technical analysis studies reach unsustainable conditions - either trapping people in trades or having them have attempted to trade many times based on faulty signals.

Price Sustainability Studty

Price Sustainability Study attempted

Reprise of 2007: Bear Impulses Down Likely to Accelerate

The markets are in frail shape. Friday's activity was particularly disturbing in that the markets could not even get the strength to use a prime setup and structural setup to squeeze bears. Markets made a swift reversal out of Buy Extreme resistance starting around 1:00 PM and never really looked back. While a continued bounce is possible very near-term (not that we are saying is likely or favored since probabilities are leaning the opposite currently), longer-term MSP and Daily MSP all suggest downward probabilities for the near future as has been consistently posted regarding this time frame on these pages. We thought it would be, considering the potential impulsive cycle activity developing in the markets, important to look back at the 2007 and 2008 period and topping process via several charts as published below:

2008 Daily Impulse Cycles

2008 Daily Impulse Cycles

2008 Weekly Impulse Cycles

2008 Weekly Impulse Cycles

2015 mcm Hindenburg Omens

2015 mcm Hindenburg Omens

From our post regarding the Janurary Effect in May 2015:

The 2015 January Effect: Status – On Track

Early in the year, we decided to do the most thorough study of all the behavioral and market structures possible to confirm or deny the veracity of the January effect. The resulting study produced the "MCM January Effect Model" with very interesting and powerful results.

The chart shown below puts a dim light on the outcome of this year. The rest of the report produced rather stunning results and to our surprise, proved that using a structured approach to a January effect could reveal market behavioral tendencies that are WAY beyond question concerning validity. Some data outcomes produced 96% win or loss rates with 60 to 70 plus qualifiers in the samples. This means 57 to 67 valid winners/losers out of 60 to 70 fulfilling observations.

This report is being refactored and will be available to members when that process is complete. Meanwhile, the data shown below sheds interesting color on 2015. Though there are a low number of observations out of 100+ samples, the methodology we used we feel is highly reliable which makes these outcomes something not to be taken lightly. Ideal turn timing is mid June to mid July.

So far, the year is tracking all the expectations pretty much as posted on these pages. Note that we have been consistent, not flipping our analysis since our first posts this year. We believe this is a significant difference from most analysis work that we have observed. The reason we are pointing this out is NOT that we need to take credit for acurate analysis during a challenging time for the markets as well as analysts - but rather because the advantages of objective, non-traditional data and structure centric analysis provides more relevant and valuable answers - it's just that simple. Even if such analysis is incorrect, its is still highly relevant because, as a basis, objective, and "fact-based" probabilities can be assessed. Failure to achieve them can be as important as achieving the probabilistic outcomes.

We have consistently posted the mcm-Smart Money Indexes, which have continued to deteriorate and most currently sit at 2009 lows - this is a decidedly troubling and challenging hurdle for the markets to heal as there has been a vicious sell-off going on for much longer than headline prices would seem to indicate.  (see:Drama in the Market Seas and Eye of the Storm: Smart Money Indexes Obliterated)

mcm Smart Money Indexes

mcm Smart Money Indexes

Currently, market facts are NOT FAVORABLE near-term and do not turn for several weeks.

The larger patterns hearken to rhyme with 2007 and 2008 and most certainly call for heightened caution. Central Banking may now have to start focusing on other issues than propping up the stock markets prior to their voyages into destabilizing negative equity as referenced in our IMAGINARY NUMBERS series.

If the impulses that appear to be setting up gain traction there could be quite a lot of damage done in a short amount of time. The primary hope for markets is to bounce NOW to better test the cyan impulse cycle breakdowns or they will most likely require weeks of downward price movement to dissipate downward energy sufficiently as to be able start a better recovery attempt. This is also supported by MSP directional projection probabilities suggesting that after mid-month in October the market is likely try to find footing for a significant upwards effort. Below are current impulses cycles that have been setting up:

2015 Weekly Impulse Cycles

2015 Weekly Impulse Cycles

2015 Daily Impulse Cycles

2015 Daily Impulse Cycles

 

Restrained Market Emotions Corroborate August Drop as Likely Downside Breakout

The VIX is a very dubious measure of emotion.

  • Firstly, it is subject to intense manipulation.
  • Secondly, it only reflects panic on drops.
  • Thirdly, euphoric behavior or panic at tops is not reflected or reliable in any form.

For these reasons, mcm eMotion and market fact analysis tools are much more insightful and reliable. What we can see from the chart below is that the markets are in frail shape and still bullish biased (via orange running cash inflow/outflow) - likely to the detriment of those bulls over the short to near-term. Signs of underlying bullishness will likely fight a good fight and remain as markets drop in the future. However, downside breakouts of emotion triggered hard well before the August weakness as can be seen below [4]. Ironically, emotional commitment on this bounce as well as commitment via funds being allocated to equities are mediocre to average at best...also, shown below [3 and 5]. While people may want to assume that the August drop was capitulatory, share directionality [2] and cash withdrawn from markets on daily basis [1] certainly reflect that illusion. These are in fact, more than likely breakouts and signs of much more to come. The reasons for this is the comparative low emotional fear and panic at the recent lows and the low eMotion and commitment to the current bounce. 

mcm Accumulation Index Components

mcm Accumulation Index Components

Note the nearing breakdown below 2009 lows of the mcm Smart-Money Index, the mcm Market Open Index and the mcm Market Close Index. Given the nature of these indexes, they suggest low balances in investor accounts and thus high leverage in the markets and a breakdown could cause dramatic stresses on the markets system as well as the financial system in general.

mcm Indexes and mcm Smart Money Index

mcm Indexes and mcm Smart Money Index

Intraday Projections: September 11th weakness

Yesterday the markers deviated significantly from structural behavior. Perhaps contract roll for futures contributed to this. We published to this deviation potential live in the "Lounge"early in the morning when the markets should have continued their down movement "This bounce should not be happening here via timing and market structure - we are covering shorts for break even. Lots of small trade shorts are occurring while much larger buys are occurring which suggests retail shorts are likely to get run over" was what was posted around 10:30 AM. This is an example of how knowing what the structure of market can be as valuable when it complies as when it does not. Significant deviation from market structure is an early sign to expect the unexpected. Combined with multi-disciplinary analysis such as the exceptional signals from the mcm-Indexes and the eTickTools, we had actionable early insight into the day's developments.

Today there are no particularly bullish outcomes probable for the day session. However, please remember that the markets are being applied strong drugs and are highly susceptible to erratic unstructured behavior.  Keep in mind, weekly projections suggest a sharp upward push soon so keep an eye peeled for the start of any upward momentum...such a move could end up being pronounced.

Note, today is September 11th. Having lived through the 9/11 event directly and personally please take a moment in tribute to this terrible event.

September 11th, 2015 Intraday Market Structure Projections

September 11th, 2015 Intraday Market Structure Projections