Monthly Archives: July 2013

Classical Wednesday

zb 30 minute atr trend

zb1daily pivots

zb2breaking out?

zb3downside retracements

zb4upside retracements

zb5back into the 240 minute regression channel

zb6price support and resistance

On tap today:-
 
07:00 MBA Purchase Applications
08:15 ADP Employment Report (Consensus 179 K v Prior 188 K)
08:30 GDP (Consensus 1.1% v Prior 1.1%)
          Employment Cost Index (Consensus 0.4% v Prior 0.3%)
          Treasury Refunding Announcement
          3 Year Note Announcement
          10 Year Note Announcement
          30 Year Bond Announcement
09:45 Chicago PMI (Consensus 54.0 v Prior 51.6)
10:30 EIA Petroleum Status Report
14:00 FOMC Meeting Announcement (Consensus 0 to 0.25% v Prior 0 to 0.25%)
15:00 Farm Prices
POMO:-
 
None today. The next release of the tentative outright Treasury operation schedule will be at 3:00pm
Follow me on Twitter and StockTwits at @deBrink

Bloomberg Radio 30 July with Kathleen Hays

Cronus's Ferry Says QE `a Boon for Other Central Banks' (Audio)

Jul 30, 2013

Kevin Ferry, chief market strategist at Cronus Futures Management, says the Federal Reserve's activities are correlated with that of many central banks, especially china. He says the Fed's asset purchases allow foreign banks to rearrange their balance sheets. Ferry talks with Bloomberg's Kathleen Hays and Vonnie Quinn on Bloomberg Radio's "The Hays Advantage."

Keeping my eye on the Dr.

Back in 2008 when I started to get long equities a few months before the lows in 2009, there was one thing that that really got me long equities at that point: The AUD/USD decisively hit a low.

Back in 2008, there were reports that the RBA was buying Australian dollars somewhere near the .6100 or .6200 levels. I was convinced at that point that the lows were in. Obviously, I was a few months off and then stocks finally started the (current) miraculous bounce off the famed “666” level in the SPX. But at that point, in the words of one of my colleagues, I kept hearing “commodities (and commodity currencies) tend to lead the market.” I kept the faith, and even though I bought about 10% before we hit the lows, I still ended up doing really well with some long term investments back then. Also, the good news was that many of our Wizetrade traders and customers also did very well in the process.

7-30-13AUDJJCSPY1

 

(AUD/USD bottomed nearly 5 months before the SPX did in 2008-9)

Fast forward to today….I was noticing a few things that got me thinking about this blog post. Copper is very close to breaking some major levels ($3). And, as many of you well know, the AUD/USD is also close to breaking below the .9000 level for the first time since mid 2010. Then, I was noticing the “lack of follow through” the markets have had since the recent new highs.

7-30-13HG

(Copper near term looking to test $3)

7-30-13JJC1

 

(JJC-Copper ETF triangle and possible H&S pattern)

Then, I started to look at the timeline. Back in 2008, the AUD/USD bottomed about 5 months (give or take) ahead of he equity markets. Sure, it was RBA driven, but it “did” happen. Today, the most recent “trend” highs in the AUD/USD was made about 5 month ago as well.

If you know copper, and you know how the AUD/USD responds to moves in copper, you know a break below $3 could be devastating to the single currency.

7-30-13AUDJJCSPY2

 (Current Divergence of JJC, AUD and SPY. Notice the AUD peaked recent trend highs about 5 months ago)

So, I guess what I am trying to say is if copper breaks down, the AUD/USD should break down, and frankly…equities may follow after challenging monthly channel resistance.

7-30-13SPY

(recent weekly channel resistance test of the SPY)

I am very worried about equities at this point. Stocks continuously move higher with complete disregard to any and all fundamental data. The entire market is in the belief that “stocks do not fall and only go up” (which in itself is one of the scariest markets to be in) and that the Fed will always be there to backstop any move lower.

I am not going to be like the guy who was on CNBC yesterday saying the DOW will hit 5000. Unfortunately, that type of fortune telling is way beyond my pay grade to figure out. However, I will tell you I see signs of a possibly pullback, and one that could be fairly uncomfortable.

For that reason, we should all keep an eye on the "Good Doctor Copper."

Blake Morrow

Chief Currency Strategist Wizetrade

Disclaimer: I am short the AUD on many crosses

Follow me at @pipczar on Twitter or Stock Twits

Anatomy of a Clusterf*ck

Fed transcripts, statements and minutes released today for the "hubris-a-paloooza" now known as the financial crisis are a fun walk down the timeline of history. As late as Aug 7 2007, with the yield curve inverted for some time and open recognition of housing going bad, the Fed stood pat. By Aug 10, emergency conference calls were the norm and liquidity was being provided in various ways. A refresher:

On June 22, 2007 Bear Stearns pledged 3.2B to bailout its own "High Grade Structured Credit" Fund after an earlier several million dollar air ball. At the same time, they negotiated others (hello Merrill) to lend against collateral for another Fund. Merrill seized $850M in collateral and could only dump $100M before the excrement hit the air conditioning unit at around 27 cents on the dollar. On June 29, Jeff Cane, coming from the upstanding business down the St. named Lehman Bros. (cough cough, sorry I'm choking) replaced Bear head Richard Martin as charge of the "alpha generating" investment pools. On Aug, 1, the first lawsuits were filed in what would morph into the Obama Administration's "full employment for lawyers but no one goes to jail" act. On Aug 5, 2007 Bear co-president Warren Specter -of his former self- resigned.

The transcripts show a Fed clearly in touch with its constituents -THE BANKS - and aware of the situation from 30,000 feet. (Kind of like the Sam Shepard character in Blackhawk Down.) On August 10, the monetary mop up starts. Amazing read, worth the time.

 

Calling All Boomers

In the not to distant future, the US government will need the rapidly growing Boomer retirees to buy large quantities of Treasury debt. The demand may need to be prodded by higher rates, tax liability, or direct mandate.

We are putting out the invitation because the 3 most consistent buyers of paper are ALL going to reduce their participation at once. The Fed is going to walk back from LSAP balance sheet expansion toward a rates regime. Japan will remain committed to Abenomics. China will have to adjust to declining FX reserves by floating the Renminbi. Everything that happens in Economics happens "at the margin" and these significant trend changes have already begun.

As the FT points out here:

http://ftalphaville.ft.com/2013/07/23/1578282/fighting-the-taper-in-china/

And Minyanville continues to cover here:

http://www.minyanville.com/business-news/markets/articles/Why-China2527s-Liquidity-Crisis-Could-Lead/7/29/2013/id/51022?page=full

And we have discussed several times right here, the Fed's balance sheet expansion is highly correlated to PBOC balance sheet assets. 83% of PBOC "assets" are FX reserves, a level that would spark fear in lesser EM nations. Capital left China during the recent EM drawdown and "tightening" up rates spread through EM countries. Indonesia and India took an overt approach while China used persuasion and Shibor. We continue to believe the Triad of official buyers of US Treasuries is pulling away and China is inching toward floating its currency. These are MAJOR secular changes.