Value of Perfect Information

The impact of interest rate differentials on FX is highlighted by the fact that the correlation between EURUSD and GE-US 10-year yields is now at +0.90, the highest since June 2007. Global bond yields may be rising across the board but the 10-year yield differential between Germany and the US continues to deteriorate for Germany, hitting 3-year lows at 0.73%. These increasingly meaningful differentials will continue to influence FX markets especially after JC Trichet indicated the ECB will extend its emergency collateral rules beyond 2010, while the Fed will conclude its MBS purchases next week. The yield differential story continues to favour the US dollar from both a short and long-term perspective. Aside from the 10-year yield differentials, EUR 3-month LIBOR hits fresh record low at 0.58% while USD 3-month LIBOR advances to its highest since September 2009.

Thus, even if a net creation of +170K US jobs is priced in the market for Fridays March payrolls, the actual materialization would further extend the LIBOR and 10- yr yield trend in favour of USD.

The euro may have rebounded off its $1.3260 lows but all eyes are on whether it will demonstrate another failed rebound as was the case 2 weeks ago (March 17). Even fundamental-oriented traders & strategists are watching the 18-week long downtrend in EURUSD. The trend line helps traders gauge whether any euro rebound marks the beginning of a new uptrend or simply a corrective move. March 17^th was such a day when EURUSD posted an intraday break above the trend line (above $1.38) only to close the NY session well below ($1.3724).

Accordingly, only a Friday close above $1.3550 in EURUSD would represent technical requirement for upcoming stabilization in the single currency. Could the euro manage to break above the $1.3550 barrier on a day when US employment payrolls may show the first net increase since December 2007? The euros failure to meet key technical requirements against the US dollar is also revealed in gold (failed $1127), oil (failed $83) and even the solid Aussie (failed $0.9250), all of which continue to struggle against USD.

FX and commodity traders also take note of the emerging dead-cross formation developing in the CRB-index (index of 19 commodities), whereby the 50-day MA has fallen below the 100-day MA for the first time since May 2009. The last time such a crossover took place was in August 2008, before triggering a 53% collapse.

The (a)  is not yet complete, but looking like building LDT (Leading Diagonal Triangle) or a first wave of bigger LDT of (a). The past waves of (A) from 666 had identical structures. Here is the same chart zoomed, to give you the idea how it may look like.

Based on this observation, I see the end of wave (a) in the next 30 days, building new higher highs. After it complete, we should see a fast a-b-c drop as (b) above the blue line between 17%-38% of previous wave. The last similar drop took only 31%. 


Based on this scenario, there are some good news for BULLs and BEARs:

• The minimal extension of wave (Y) is 1294 in /ES, 100% would be 1451.
• The period for (Y) to reach the top is about from August to October 2010.

Detailed targets should follow when (a) and (b) are complete. 


Finally the short-term picture of SPX 

I expect to see 1180.60 for wave overlapping between 1LDT and 4LDT, the final 5 LDT could run into the 1200 area.

P.S. The weekly and daily RSI are  strong overbought, I thing we should see the divergence, until the (Y) is over.

I hang out at MortiES Premium during the trading day where I provide charts and analysis during the trading day. Mortie has a free thirty day trial going on. Give it a try by signing up below:

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.

How about that! We got to 1170 which is halfway between my 1160 and 1180 prediction back in July 2009!

I mentioned the 1180 level originally back in July 2009 to email subscribers to my newsletter!

http://www.bostonwealth.net/2009/10/04/when-will-this-bull-run-end/

This is what I said back in July 2009, almost 9 months ago!

Back on July 28, 2009 I sent out a newsletter to subscribers stating the following:

“Finally!!

The S&P 500 200 day moving average increased compared to the previous day’s level for incredibly the first time in a year and a half! This has been one of the worst and longest streaks of consecutive days with a declining 200 day moving average and tonight that streak has come to an end!!!

For all the naysayers out there who have been saying that this rally is not for real and that a confirmation signal was missing because the 200 day moving average was still declining, well that theory has now been negated!

Following the end of this streak in the past, going back eighty years, the S&P 500 has averaged a return of an amazing 20% during the end of the prior five worst streaks; you can take that to the bank.”

So back then in late July 2009 the S&P closed at 980 and went up as high as 1080. A 100 point increase in the S&P 500. However applying the historical data mentioned above, the end of this bull run should occur at 1180 which would be that 20% historical gain!!

I don’t know for sure, but history seems to be on the side of a continued bull run!

http://www.bostonwealth.net/2010/01/10/the-1160-level-is-where-the-sp-found-initial-support-after-the-lehman-collapse/

And above is where I mentioned the 1160 level:

Over two month ago, I stated the following in an exclusive article I posted over at Slope of Hope:

Why I see 1160 as an important level and hurdle to overcome: The 1160 level is where the S&P found initial support after the Lehman collapse. This former area acted as support, and should now act as the final front or resistance for this juggernaut of a bull run

This Slope of Hope post is back from November 2009

http://slopeofhope.com/2009/11/is-history-on-the-side-of-the-bulls-by-boston-wealth.html

…and this after nearly nailing the bottom in 2009 from October 2008!

http://tinyurl.com/yldaczx

Nothing like going out on top and being correct and saying that you were the best analyst to yourself!!

But hey wtf do I know.. as many have said to me or prospective subscribers or clients.. if you are so good, then why do you need to have a paid site or worry about other clients and need to manage their monies or heck even our money?!Answer: Good question! I don’t!

Seriously thinking of retiring in Jan. 2011 as I turn 50!

I like this count and it is reinforced by my ever expanding data and need to attain that “Value of Perfect Information”
Utilizing the information directly from S&P that can be found here:
http://www.standardandpoors.com/home/en/us/
Then click on the images below to see how to get to the excel spreadsheet after you register with S&P
Ok so how did I get to 1250 which should happen very soon with the exceptional good earnings reports coming up that I anticipate.
Ok.. look at the column that says Operating earnings bottom up for 2010 which adds up to $76.47 (this number is continuously changing as the earnings are fine tuned)
Bottom up:S&P covering Equity Analyst estimate for specific issue, building from the bottom up to the index level estimate
Top down:S&P estimate (Economics Dpt) incorporates models (economic, financial, policy), does not come down to issue

Over the last 20 year period the index traded at an average of 19.4 times earnings, but you have to discount that because it included a 12 years bubble; so taking a longer term average of around 15 times earnings is more realistic.
For the past 100 years the S&P 500 P/E multiple has been 16.37 times the trough earnings.
So taking $76.47 x 16.37.. and presto you get SP500 at 1251.

I have done a post in the past regarding operating vs reported earnings.. operating is what the bulls like to use…
The “As Reported” number tells us a lot more about the slings and arrows the company endured during the reporting period while the Operating earnings number tells us more about their gross earning power
When you hear the word earnings used by analysts, you need to understand the difference between the two types; “operating” and “as reported”.
When calculating the Price Earnings Ratio (P/E) for the S&P 500 or any stock for that matter, the E in the P/E is vulnerable to major manipulation because the accounting method used to derive the earnings can be misleading to say the least. The S&P 500 P/E ratio reflects the performance expectations of the stock market.
Just remember this:
Bulls use “operating” earnings which are inevitably higher
Bears use “reported” earnings, and as such, are inevitably lower

Bulls use forward “operating” earnings for the next 12 months.
Bears use the past 12 months of earnings to make their case. The advantage of that is obvious: it avoids the dependence on estimates of earnings going forward.

The all important major difference?

Bulls use “operating” earnings which exclude write offs.
Bears use “reported” earnings which include write offs. As such this is by far the gold standard or interpreting earnings because these write offs that consist of miscellaneous non recurring one time charge and expenses typically take place almost every year.
You might ask… well why isn’t Ben utilizing the data for reporting earnings! Simple! Because today and for this week I want to have my “Bull Cap” on!

The bulls use “operating” earnings which are also known as “pro forma” earnings
So the bears use “reported” earnings which is based on Generally Accepted Accounting Principles or “GAAP”

And this is how we get such a huge discrepancy between the bulls and the bears.

Today the Institute for Supply Management (ISM), released it’s December manufacturing survey results and the markets jumped. Here’s what I read on the Econoday summary for today, “Growth in the manufacturing sector is accelerating quickly, according to the ISM report which opens the New Year on a strong economic note.”
I’m no expert when it comes to how these reports are procured, but I don’t think those numbers are derived from success within the US. The ISM chart shows manufacturing at higher levels than when we went into the recession in 2007. Productivity means jobs…where are they?
All is not well with commercial loans. Loan default rates continue to increase in all areas except credit cards which have leveled off. The default rate chart shows data up to September 2009.
We won’t see 4th quarter results until March if we’re lucky. Why do they wait so long to release the data? Ask the Federal Reserve. Ask the Obama administration. During the Bush administration I could go to the White House website and view monthly default data. Now we just get fluff: http://www.whitehouse.gov/
If a reader knows where monthly default data is available please leave it in the comments section. Thanks!
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good luck,
Mark
Content on CEO Trader is opinion only, please trade at your own risk.

Hmmm, it is silly season and the markets are levitating against my short positions. The precious metals correction that NFTRH had anticipated is well in progress. I remain long there. So, by extension I must be pretty bummed out, yeh?

No freaking way. Momma always told me to have patience… and a plan. I do, and if nothing else I look on with a sort of comic bemusement (if that’s possible) and await resolution. Noise baby, noise.

Speaking of which, last year during the deflation scare, somebody sent me a particularly good bit of noise, the self-proclaimed “scariest gold chart in the world”, targeting gold at below 400. Now, it is easy to produce charts like that during a deflation when there is little apparent chance of the metal actually breaking to new highs, as it ultimately did a few months later.

This is the kind crap that comes out and reinforces the popular sentiment. Right now, that dynamic is going on in the markets to the upside. Well, I will show you what I think is one of the scariest charts in the world; the yield on Larry’s 30 year bond.

See the baby inverted H&S (green) that has already broken the neck line? That targets close to 5.2%. If that target comes to be, then we will have broken the neck line on big bro (blue) and its target of 6.8%. How do you think such a rise is going to play with the macro wizards and their ability to sell US debt around the world? At best, I could envision a self-reinforcing buyer’s strike on US treasuries as would-be buyers await maximum yields for buying the debt of the hopeless and chronic inflator. At best.

The junk bond etf HYG is a good indicator of the mood of speculators and their confidence in policy makers’ ability to keep the inflation going because the fundamentals of the companies represented here boils down to the fact that money is created out of thin air (inflationary debt creation) and targeted toward keeping enterprises destined to fail, that should fail, alive. This is part of the wasteland where money goes for very unproductive means, other than to enrich speculators taking in interest income while playing a game of musical chairs with the public trust.

The lower panels show that damage has been done to HYG’s ratio to safer 7-10 treasury bonds (IEF) and higher quality corporate debt (LQD). These breakdowns, if they follow through, are expected indicators to the next round of credit problems that would attend another deflationary impulse.

Of course, it is the ratio of the historical honest monetary anchor, gold to various assets that would be the ultimate gauge of speculators’ urge to continue gaming the system or perhaps cash out of the game.

The gold-silver ratio (GSR) continues to be the stubborn holdout to gold’s otherwise good looking bottom-making stance as measured against a whole host of other positively correlated assets. The short-term uptrend continues but the intermediate downtrend line has not yet been broken.

Gold continues to do impressive work against the stock market, oil and copper in establishing fledgling up trends after fanning through the various bottoming processes. The NFTRH stance remains that, as with the explosion of fear that was Armageddon ’08, gold’s upside explosion in ratio to these things was unsustainable. The entirety of Hope ’09 has seen a downward consolidation of these ratios in anticipation of the next upward leg. This will happen along with the next credit contraction and deflation impulse.