Value of Perfect Information

Starting the month on a high note, the US dollar index could be in for the 6th consecutive monthly gain, which was last seen in Jan-June 1999. Similar to today, 1999 was characterized by contrasting growth prospects between the US and Eurozone as well as escalating doubts with an overvalued euro, high ECB interest rates, and a Germany still reeling from the Asian crisis. (see chart below).

The other 2 striking similarities are the outperformance of US equities relative to their European counterparts as well as the anticipated Fed tightening to occur before that of the ECB. In 1999, the ECB was forced to cut rates in April, followed by a Fed rate hike 2 months later. Today, the Fed is signalling policy normalization (looking to sell assets, raise discount rate, concluded asset purchases), in contrast to the ECB, whose decision to suspend minimum credit rating requirements for Greek govt debt used in ECB liquidity operations comprises a de facto easing.

On the equity side, S&P500 and Dow-30 are +7.8% and +6.9% respectively, while the Dax-30, CAC-40, FTSE-100 and MSCI-Euro are all in the red at -5.2%, -1.11% and -4.8% respectively. These losses would be exacerbated by at least 4 percentage points if the USD returns were used instead of local currency returns.

USDX Focus Considering our expectations for $1.30 EURUSD before quarter-end (this has been our position since February and $1.27) before end of Q3, USDX carries momentum to make it past the 84 figue. That is especially given robust momentum in USDJPY, which is seen testing 97 along the same period. If the USD index sticks to its historical inability to rise for 7 straight months, it would mean that June could be a down month.

Super Thursday: ECB Decision/Press Conference & UK Elections

Neither the highest manufacturing UK PMI in 14 years, nor diminishing chances of a hung parliament to the favour of a Tory majority are sufficient to boost the pound against USD. Those planning to trade GBP around Thursdays elections are cautioned that Thursday will be driven by the much anticipated ECB press conference, where JC Trichet will have to explain the controversial decision to abolish minimum credit rating requirements for Greek govt. debt used in ECB operations. There is even talk of a surprise decision by the ECB to purchase bonds, in which case will magnify the contrasting policy directive between the US and ECB.

As the early exit polls will be released after 21:00 GMT Thursday, this means FX activity in GBP will escalate after NY Thursday close and into Friday Asian trade. The usual calm before the Friday Non-Farm Payrolls storm may not take place partly due to the volatility and recurring rumours on the election outcome. As it stands, chances of a hung parliament have fallen to 52% from the 62% reported 2 weeks ago by Betfair.com. Such an outcome is suggested by a Tory majority, which should be a definite positive for GBP. But the question remains: How early in the day will such an outcome be revealed? Thats what readers of this website and my followers on twitter will be getting on an continuous intra-day basis. http://twitter.com/alaidi GBPUSD bearishness must close below the $1.5120 support in order for any realistic chances to break into the $1.50 figure. Any election-driven upside surprise could see gains limited at $1.5380, but $1.55 remains a stubborn obstacle, drawing fresh offers back into $1.5070. In the event that neither major party succeeds in winning majority (hung parliament), fresh losses could drag GBPUSD towards $1.47 into the following week, especially if such an outcome proves to be a close call.

Click here for reminder of our warning on S&P500, Dow-30 and the signal from the Baltic Dry Index.

Baahhhhh… wonder what Lyin’ Larry has to say? I haven’t heard (or is it herd) too much from him lately. Here’s another example of a chart (originated a few weeks ago) that just may work out with a little patience.

Ok, I am back on EWwaving and EWtrading, Hey!  I am 30 years old and was born in Kiev, Ukraine and now live in Germany. Trading and Elliot Waves are my passion. I work as a consultant in the securities industry.

After failed hunting the wave IV, P2 or whatever, losing money and mind, I took a personal break, and during this time I was able to  re-analyze the global picture, which I would like to discuss in this post. In the last few month I also have realized, that there are two big groups of traders who emotionally BELIEF in BULL or BEAR markets. If an investor is talking about a BEAR market, everyone is adjusting their EW count to a P2 scenario, with a utopian target of around 1,000 in DOW in several years (e.g. EWI). The other group, BULLS, are seeing the beginning of  aBULL market with a DOW target about 20,000 in the same time. The discrepancy is about 19,000 dow points. But the are a lot of reasons, why  both these cases do not make any sense.

The BULL case: everyone knows, that government world-wide is printing money (FED, EZB), less tax-incomes are increasing public/national debt DRAMATICALLY (German’s debt in 2009 increased by 7.1% or 112 Bil. EUR, US budget deficit hit a record $1.4 trillion in 2009, etc.). Unemployment hit over 10% in the USA and is probably bad on average in Europe. Even if the stocks are rising, it means for me nothing than the notional VALUE of money is just GETTING DESTrOYED. Or in other words – hidden increase of INFLATION. Inflation will be a very good way to pay back the dept in the coming decade(s). But in reality, we just know only 10% of the big story, without mentioning any impacts of  CDS’s, defaulted Corporate Loans, CDOs and other financial issues, we will be faced with its impact on us and the economy in the next 5-10 years. For me there is no one single reason from an economical perspective, which gives me at least one single argument to say that we are done with the  recession. If you do not believe me, there are 4 economic cycles in every economics school book you can learn in your second semester. When we will see the Bull market we are still missing one cycle in between.

The P2 BEAR case: I just want to point, that this case is coming from EWI, which will be destroyed, after we reach a new high.  Dow at 1,000 and S&P500 at 150 is not realistic, at least only because of  the huge amount of virtual money, printed by the FED. Such case means unemployment of more than 50% – possible, but until the FED has a right to issue money, bonds, which will be accepted by all WMF members (hope you understand what I mean) –  I see this case as UTOPIA. Even if everything gets worthless, Apple/Amazon/Google will have enough cash to hold Nasdaq100 over 900 – joke. Mr. Preacher- please adjust your count!!!

The OTHER case: I was looking for some other case, which adjusts to the economical and political issues, we have seen from year 2000 till this time, when the economy can REALLY solve the old and new issues, to give people and government new BREATH for the BULL run.  Two weeks ago I  read an article in a German newspaper, which described the situation, when all EU countries will reduce its debt deficit by only 0.5%/year, only in 2018/20 we can reach the same economical state of 2007.  Historically we had similar economical disasters, which took on average 17/18 years to solve, and produced finally a new BULL run. This happened in 1906-1923, and in 1966-83. The similarity is obvious to the time from the year 2000. If in 2000 we completed only the cycle III, we should be in the cycle IV. Based on new count I see a Double Flat formation, which will last until 2017/2018.  Between 2000 and 2009 we only finished the (W) wave, which has an irregular flat pattern. Now we should be in the (X) wave into the 1500th area. Please see the daily chart below.

Daily Wave count: We are in the wave (X) which is moving from 666, and has a target between 95%-110% of Wave (W). The minor (A)/(W) is already finished. Now we are in the (B)/(X)-wave. The first A/W-wave of (B)/(X) is finished, and I am counting the B/X wave. Right now we should be in the (a)/(w) of B/X.

Short term count: the blue (a)/(w) shows a w-x-y pattern right now, it is still not clear, how the y-wave will extend. I see a sub-wave structure of a-b-c waves, where the first part of a of y is complete and we are now in the a-b-c of b of y. Tomorrow we should also finish the b of y probably as irregular or running flat and start the c of y, with a minimum target of 0.618 of a, which is 1204.5 in S&P500. 

For any questions or comments, fill free to write me: yury.menchinskiy@gmail.com.  I hang out at MortiES Premium during the trading day.

Two charts shown previously, that have been stored and updating.