Yves on the Flight To Safety in the Dollar

Interesting market in April.  All the gains were on the first two and last two days of the month.  In between it can count as a triangle, according to the STU.  Their ending diagonal is gone, but the triangle looks sound.  Typical to have a triangle in the penultimate wave (B or 4).  Suggests a final five-wave C ahead.  Other pundits saw a rising bear wedge, but if so, we should have a sharp correction.  Instead, we shot up last week.  Perhaps that is a false break; but if so we should have serious down action early this coming week.  Neely's count is a bit confused; read the many comments to the last two posts for a very good assessment of Neely.  In any event, Neely expects a sharp rise in the weeks ahead.  We still have a ways to go to hit the normal 38-50% retracement levels.  Here is a good chart in the S&P with those levels. 

Yves has also been active.  He still holds to the current wave as a running flat wave 4; but if it pops well above Dow8400 he will have to reconsider.  He was on Bloomberg Radio last week, and has a view on the US Dollar as a haven in a flight to safety.  Recent trends in the bond market suggest this may be ending.  Yves had been an early predictor of deflation and a bull on the USD, but now he says to hold Yen.  Worth reading below the fold.

Is the flight to safety coming to an end?

New Yorkers woke up to a very bad dream in the latest photo op from the presidential plane fly over New York recently. They did not forget to run or in some cases panic.

We on the other hand have forgotten very quickly with very little passage of time that things were still a mess. But hey don’t let a little engineering upset the wagon. It is still in a delicate equilibrium.

The Fed is forcing the bond market into an unnatural position . The consequences of holding rates low is certainly a build up of forces that tend to push opposite. You will see  in the graph the first line in the sand that I feel is now breaking. The yield in the 30 year Treasury is now moving up. It does look primary in nature and breaks into 5 waves clearly. We may or may not have entered a wave 3 but at least a wave C  as an alternate count. Either way we are looking  at a rather fast move up in yield . I do believe that the market is not prepared for such an outcome. A similar analysis of 10 year Treasury could equate to yield rising 1% or more.

All assets are yield sensitive and this could blow another hole in the banks balance sheets.  It will put pressure up on mortgages and likely promote more housing declines.

I have been a bull on the US dollar since early 2008. I did believe that it was a structural problem that would bring down the house of cards. I feel however that this trend is about over. The seed of a flight to safety was little more than a gigantic unwind of short positions on the greenback. Managers feeling lucky are now finding better opps in other markets . They are selling bonds and the currency. The big problem is that most are all on the same side again. We have to unwind those bonds and it is now clear  that the Fed cannot hold the dam.

Gold looks rather attractive in such a background and looks set  to break  the 1,000$ this time around. I also suggest to be long yen or euro as one of the theme, money repatriation, is still playing out .

One flight to safety ends but we may embark on another soon…….

Yves Lamoureux, Investment Advisor,   Blackmont Capital Inc.

The opinions contained in this report are those of the author and are not necessarily those of Blackmont Capital Inc., nor of Yelnick.  Every effort has been made to ensure that the contents of this document have been compiled or derived from sources believed to be reliable and contains information and opinions which are accurate and complete. However, neither the author nor BCI nor Yelnick makes any representation or warranty, expressed or implied, in respect thereof, or takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. BCI is an independently owned subsidiary of CI Financial.  CI Financial is a Canadian owned diversified wealth management firm, publicly traded on the TSX under the symbol CIX. Blackmont Capital Inc. is a member of CIPF and IIROC.

Comments

[Mike McQuaid]

S&P 500 has formed an ascending triangle bounded by its lower trendline since the March 6 low and the 127% fib line of its wave 1 limits off that same low. Actually closes on Wed. through Fri. excedded the 127% line so the pattern has broken out of the triangle. A likely scenario is for higher prices to the next 161% fib line at 924. Since this action spells a wave 3, serious resistance doesn't enter until chart congestion matches the 261% fib line at 1086. Short covering and eager sidelined cash could fuel this rally. As this rally unfolds a lingering anticipation for a pronounced wave 4 correction alternating an almost inditinguished wave 2 should keep participants sober.

[DG]

Mike,

Every lower trend line off the March 6th low has been broken except for the most recent one connecting the March 6th low and the May 1st low. That tells me that this entire move has been corrective and will eventually be retraced in its entirety.

[vipul garg]

neely doesnot label the curent move as an expanding triangle .. it is a neutral or contracting triangle(depending on the upsides) in which e wave is just a shade smaller than wave c .( in case it is a contracting triangle)
the reason that is to create proper alternation with wave a and wave c which is the most important characteristic of a triangle.

Tom, yes wave e has to be the smallest of wave a, c in both neutral and contracting triangles.
wave e can terminate higher than a, c giving the triangle an upward slant.

[vipul garg]

DG , it is really a no comment land on the wave E really..it doesnot fit the bill to many things right now..
but given the large wave C was a contracting triangle , wave E ideally will not be a contracting triangle .. and for a neutral triangle market has to really dash up and go to a 1000.
with every major analyst on tv expecting 950-1000 and catch up rallies, i t will be something to see market fulfilling everyones analysis.

[DG]

vipul,

Looking at the latest trading update and the labeling of wave E, I think Neely has waves a and b labeled correctly and that we are in wave c (starting on April 1st) of a contracting triangle with reverse alternation, which was Neely's count before we topped 875. That wave c is channeling like either a diametric or symmetrical formation and is close to ending (we are in at least wave e of that formation). I don't like to use analogies from past market action, but the current formation from April 1st is channeling almost exactly like the diametric that started at the 2003 low, which can be seen on Neely's monthly charts.

We will then have wave d down of the reverse alternation contracting triangle, then wave e up to end the expanding triangle from the October lows.

Apologies if this is not clear. I don't really post charts online, so a verbal picture will have to do for now.

[Tom]

Does any one really understand why 875 on the S&P is so important to Neely's forecast? I mean I realize resistance is broken and now the market has less of an overhead obstacle to its pursuit of 950-1000, but this argument seems to fall in the relm of traditonal TA rather than Neowave or Elliott Wave. Maybe it's a product of his Neely River Trading which is now bullish on an hourly and daily time frame?

Btw, I noticed that the Nasdaq Composite and Nasdaq 100 have both fulfilled their expanding triangle pattern as part of the larger correction off the Oct. '08 lows. Wave E of both indices have exceeded 1.618 x Wave A of their respective wave structures. Wave E of the Nasdaq 100 has also exceeded 1.618 X Wave C, and the Nasdaq Composite is close to doing so.

[DG]

Tom,

If you look back to the old count, as portrayed in the April 15th trading update, for example, 875 has importance because it was the end of one formation and the beginning of an x-wave. An x-wave in a running formation should not be completely retraced. Also, that old count had the formation before the x-wave end at a lower high and to keep the logic intact, that high should not have been surpassed.

Now, with the new expanding triangle count, both of those situations disappear and we are left with simply the fact that resistance has been overcome and the possibility (not certainty) that a huge bull trap is in play in the form of a neutral triangle (or, now, expanding triangle) formation.

Again, I am of the opinion that the April 15th trading update count is still in effect, just that wave C is not done. If you look at wave A from that count, it was at least 13.26 SPY points (depending on where you end A, it went from the 67.74 low on March 9th to either the 81 high on March 19th or even higher to 82.36 or 83.3, but 81 will work for this analysis just as well). Wave C so far has gone from the 78.33 low on April 1st to the 89.02 high on May 1st, or 10.69 points, which is still within the realm of the rules of a contracting triangle relationship between waves A and C.

Even the wave B (taking it from a high of 83.3 to the low of 77.96) in that scenario continues to follow contracting triangle rules by being 50% of wave C. Of course, you have to remember that wave B and wave C in a reverse alternation triangle will have the Fib relationships that waves C and D have in a regular contracting triangle. In chapter 12 of MEW, Neely says that wave D will be .618 or .382 of wave C, if there is a Fib relationship between them. But, there is a more general rule of triangles that says at least 3 of the 5 waves will be 50% of the waves that precede them. The trick is that in reverse alternation, the idea of "preceding" is reversed for waves B and D.

[vipul garg]

DG , wave c is a complex correction ..diametric or well channeled ..only thing is to wait for its conclusion.

Tom,
875 is so important because initailly he had labelled an e leg of triangle ending there. so such a weak conclusion cannot be simply exceeded by a wave of same degree .exceeding means a pattern didnot end there.
it completely stems from wave structure and behaviour logic.

[vipul garg]

the one thing which bothers me is that on Dow the present exapnding triangle doesnot hold good since october lows.so though the sp500 and dow vary in their composition, the long term counts on both are similar ..

[DG]

DG , wave c is a complex correction ..diametric or well channeled ..only thing is to wait for its conclusion.

I agree that the best thing to do is wait. I went short on Thursday after we started to drop but covered near the end of the day on Friday because the move down was not strong enough. If you look at the channel from April 1st, we spent the first half of the time up near the top of the channel until the April 17th high and since then we have spent most of the time in the lower part of the channel. Clearly, the market is weakening despite making new highs.

[vipul garg]

DG, have you been able to see dow ?

meanwhile if somebody trades crude, a huge huge rally looks imminent to 80$ plus

[Upstart]

Uh oh. If the STU is talking about my bullish triangle and Neely is looking way up too I better start to worry.

[Forkoholic Serge of Elliott Wave Forkology]

EWF Long term NASDAQ Composite Count
This weekend we look at NASDAQ long term count since 2007 top. The count is similar to SPX in many ways. We see 5 waves structure down from 2007 top to March 2008 low as well as from July 2008 High to March 2009 low. This could be a completed ABC or a much bigger 5 waves structure with only 1-3 waves completed. Elliott Oscillator at the bottom confirms 5 waves possibility as well.

Spent whole weekend working on Phi/Fibo/Lucas Dates calculator. So far it work on Calendar days, with trading days hopefully coming soon. If you guys have or find I'd appreciate it : 1) IsTradingDay function
2) algorithm to detect major Highs/Lows preferably in Delphi/Pascal language.
Here are some upcoming cluster dates on $SPX:
Calendar Future Date:5/9/2009 Lucas:123 From Date:1/6/2009
Calendar Future Date:5/15/2009 Lucas:521 From Date:12/11/2007
Calendar Future Date:5/19/2009 Fibo:1597 From Date:1/3/2005
Calendar Future Date:5/20/2009 Lucas:3571 From Date:8/10/1999
Calendar Future Date:5/30/2009 Fibo:144 From Date:1/6/2009
Calendar Future Date:5/31/2009 Fibo:377 From Date:5/19/2008

Just for fun I ran it against winning lottery days in LA county - looks like your best chance for next big win after a big win day is 34 and 55 calendar days after, at least in LA county.
http://forkoholic.spaces.live.com/default.aspx

[DG]

vipul,

I looked at crude early this year and see potential for a move to ~$120+. We never got down as low as $28 and if we're in a flat wave 2 (which will end in a C-failure and then wave 3 for oil), we should retrace 80-100% of the move down from $147/barrel.

http://yelnick.typepad.com/yelnick/2009/01/will-the-real-market-please-stand-up.html?cid=6a00d8341c563953ef010536c70e89970c#comment-6a00d8341c563953ef010536c70e89970c

I tend to avoid counting the Dow, due to the fact that it's not as broad as the S&P 500.

[DG]

Uh oh. If the STU is talking about my bullish triangle and Neely is looking way up too I better start to worry.

Posted by: Upstart | Sunday, May 03, 2009 at 02:07 PM

I'm glad I disagree with Neely's current view because if he agrees with you, I better start to worry.

[da bear]

well, the ultra short 20 year + Treasury ETF (TBT) is starting to break out on the upside. so that could put lots of pressure on the dollar sooner rather than later perhaps.

link to TBT chart: http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=tbt&sid=0&o_symb=tbt&x=0&y=0

looks like the play is to buy the short end and sell the long end. which is basically a fear-induced play which should hurt the dollar and help gold later, since gold has no insolvency risk and is not burdened by high interest payments.

I am still thinking that McHugh's May 20 turn date could be significant. could be that "Spring Rally" top that we have been anticipating. anyone else?

da bear

[da bear]

... I just saw the bloomberg chart of the 30 year treasury. looks like it is in wave 5 now. hey, what about a trip back to 5% to make for a triple top? wouldn't doubt it. that would then bust about every bank on the planet. lol

i would want to load up on so-called 'fiat metals' by then.

da bear

[Rob]

da bear:

McHugh is leaning to the May 20th phi-mate turn date being a bottom, not a top.

[Tom CZ]

Market got to new highs without new highs on momentum indicators thus creating divergence - the same like on the bottom. So it might be a short term bull trap. Risks lie in positioning as recent ICI fund flows data does not support market covered on shorts (seems the same on sentiment data) and up-crossed weekly studies. All in all I am still looking for the selling to intesify soon - but should be corrective in nature to around 750 on SPX.

Tom CZ

[Sean]

Yves, I really could not interpret your bias in the views.

1) You are now bearish on USD? Expecting the short USD to have completely unwound and USD embarking on next major down move?

2) You are now bearish on bonds? Expecting 10 year yield to go up to 4%?

3) So are you still bullish or bearish on stocks? Dow Jones briefly popped above 8,000 but stayed below today.

Thanks
Sean

[anon]

ok this market is never going down. i am buying SPX calls because they are guaranteed to make money.

Yves, now that 880 is broken, what is your next resistance?

[Hank Wernicki]

When everyone sees an ED or a Triangle, of course it will not unfold ....

Market is not that easy to read ......

[anon]

market is very easy to read. i just bought some SPY calls and they are already in profit. Government will NOT let the market go down.

[Yves]

Anon, I am using the Dow and the level that needs to be broken is 8400.If this gives then 9,000 looks to be next resistance.I will also have to forgo my running flat scenario.I would like to see a clear breakout over not just touch and go (down).

Yves

[Mike McQuaid]

XLF shows an impressive breakout from April's ascending triangle and adds to the confirmation of the March 6 trend reversal. Wave 3, now underway, looks on track to surpass 161% of wave 1 labeled at March 19. So figure 11.98 is in the bag and it's onto 261% at 15.72, to anticipate labeling wave 3.
Tha pattern similarities are numerous enough to the S&P 500 to indicate the financials are providing market leadership.

[Yves]

Sean , I have been US dollar bull since about late 2007 against the CAD.What people consider a flight to safety it is not.The taxi driver wanted out of USD and everybody else.
I saw an opportunity to be contrarian and bet for a rally of the greenback.I think that the natural forces will prevail again .The same forces will again start to push the dollar down.I am looking to play this long euro , yen and gold.Yes back to the bear camp for the USD.Part of the trigger comes from falling bonds .I have been bearish since we broke that top band as indicated.Rates should go up 1% on the 10yrs short term.I cannot see how this is good for stocks.I am bearish stocks until I see stabilisation of rates and it has to be priced in the market as well.I dont think it is at all.I just sold my uranium(U) but keeping my grains(DBA).Recently bot Barrick and Goldcorp as a bet the spread against gold will narrow.
Cheers hope this helps

Yves

[anon]

sold calls at end of day for 22% profit. Plan for tomorrow is to buy SPY 90-strike calls in AM if market regardless of whether market is red (unlikely) or green (extremely likely).

I have been doing this for several days and it is literally free cash. unbelievable.

Red futures in morning would be an incredible gift of extra risk-free cash, but calls will make $$ regardless.

I have free protective puts named Obama and Geithner.

This is as good as it gets.

[DG]

All we did today was hit the top of the parallel channel lines connecting the March 26, April 2, April 13 and April 17 highs.

[Upstart]

There are always scads of people who see "the" pattern. I remember a triangle in gold early in the bull that EVERYBODY saw, and people said it wouldn't work for that reason, but it did.

[PL]

"All we did today was hit the top of the parallel channel lines connecting the March 26, April 2, April 13 and April 17 highs."

True, but have definitely moved to the north side of of the parallel channel line (upper 11/4/08 - 1/7/09) (lower 11/21/08 - 2/6/09). All on a semi log scale of course.

PL

[DG]

PL,

Did you mean 3/6/09 for the second hit of that lower channel line?

[PL]

Can't read my own program. 3/6/09 it is.

http://cykf.net/TradeStuff/Guessitwas3_6_09.jpg

[Forkoholic Serge of Elliott Wave Forkology]

Elliott Wave Forkology $SPX fractal update May 4th, 2009
Wow! What a day! WHAT A DAY! So fast and furious - have u felt it? Today's $SPX fractal managed to pack a big chunk of last week's action and as if it was not enough it came back with vengeance - at the end of the day it managed to pack Sunday's overnight action as well as whole today's action!

WHAAT? What did you just say? "Today's action contains today's action"? No, I don't believe it. It's not possible ... Let me out. I want out.


Are you following me? Today's action contains fractal version of today's action inside! Like a set of Russian Matreshka Dolls! Devolution at it's best! That's why you need to watch overnight futures - if you don't - how the hell will you know how it looks like? Doh!

The argument could be made with Evolution fractal the Head(of the fractal) is always known but the Tale is not, so with Devolution fractals it's probably other way around - the Tail it always known but the Head is not. That's probably why EDT action sometimes breaks down and sometimes has overthrow.

http://forkoholic.spaces.live.com/default.aspx

[DG]

Oh, for Christ's sake.

"Futures charts present a unique problem to the application of Wave Theory. They contain an element of 'deterioration'. When dealing with distant futures contracts in most commodities, the cash market trades well below the futures price. As expiration of the futures contract draws near, the futures price will approach the cash and, for most markets, will be equal at expiration. Occasionally, supply and demand factors in some of the agricultural commodities can create severe imbalances which prevent the futures from equaling the cash at expiration. As carrying charges and other costs are subtracted from the futures contract on a daily basis, a continuous and gradual price erosion occurs during the life of the contract. Over a period of time, the inherent price distortion in a futures market can wreak havoc with long-term wave analysis. In addition, some futures markets (due to limited public participation) are susceptible to incidental or accidental manipulation by 'strong hands' (well-capitalized individuals or groups). Again, this can create great difficulty in deciphering an Elliott Wave pattern.

Manipulation of a true cash market is far more difficult than a futures market and requires much more capital (due to a lack of leverage) and time to initiate. Therefore, the return on investment is less when attempting to manipulate a cash market. Additionally, a cash position is not as liquid as a futures position. The result, manipulation of a cash market is seldom attempted or successful.

The Wave Theory requires a large degree of public involvement (which generally precludes or greatly hinders any manipulation potential) to manifest itself. Since cash markets always involve more participation by the public (through direct buying and consumption, as is the case with commodities) than futures markets, wave formations always tend to be more standardized and predictable when cash data is used. In constructing your data series, use cash data whenever possible."

So, there you have it. You can believe in some "Russian doll" theory or you can agree with Neely's rational explanation of why cash data is the only reliable data, except in the case of futures like the Euro, where the cash price and the futures price are the same and there are 24/7 markets.

That's not to say you wouldn't enter or exit a trade during non-cash trading hours, but you wouldn't base a wave count on non-cash futures action.

[Rob]

Forkoholic Serge:

Could you please explain that mumbo jumbo in English, or is it worth repeating?

[anon]

there is no analysis required.

futures are slightly red, which will give me the opportunity to buy SPY calls at the open and sell at the close for MAJOR gains.

anyone short this market is a clown, i will be collecting free cash again tomorrow.

[Wavist]

Whilst all the points made in favour of analysing cash over futures markets are true that doesn't quite render futures data entirely invalid as such but just second best where analysis is concerned. As there isn't an overnight cash market to follow (and if there was it would in any case be susceptible to the same arguments regarding low volume, manipulation etc) you just have to make do with what you have. In any event overnight moves don't tend to be that major and are more a matter of connecting the dots as it were.

[DG]

Wavist,

Since anon assures us that the market can never go down, I guess it only matters whether the futures are negative, allowing us to buy calls at the open for cheaper than we would be able to if the futures were positive.

[Wavist]

Well the best of luck to you anon, but as a rule whenever any setup seems easy and certain it's all about to turn to dust... Just stick with daily options and don't bet too much on any one day.

[Wavist]

I was wondering where I'd seen a market looking just like the last three months and then I took a look at the same time last year...

[Wavist]

DG Rofl Ohhh if only someone could've told me sooner!!

[KRG]

Vipul:

What is your count on Crude? Do you look at Rupee & Nifty. Would appreciate any LT counts there based on Neowave

Cheers

[vipul garg]

KRG ,
i dont look at rupee
nifty has completed since jan08 highs an expanding triangle as wavew a till october 08 lows, and is in a complex b wave or x wave ever since .

longterm we are in wave 4 since many years say 15 or plus. and this correction is final correction for the wave 4 , maylast for 5 -8 years or so ( sensex must go below 6700 for this count of mine to be valid)

[KRG]

Vipul:
Thanks. What would be a target for this b or X?
I was looking at current move as 4 of C (traditional EW)with max target of 3800 and then 5 to test and may be break October lows

I will try to put a link for Rupee & Crude, may be you could take a look at your leisure

Cheers

[vipul garg]

KRG,
if you can do for rupee that will be nice ..

crude really has to shoot up massively ..80-90 $ likely
i exited at 3450 levels and havent got a chance to get in..the rally is so fearsome
3800 looks a gud level for topping considering 12500 as strong sensex resistance levels.however everybody i know is selling into the rally of nifty, so is hard to call the top, but surely it cannot exceed 4303 levels if it has to break october lows again.. i have a feeling that we will really come close to it
it all depends on what sp500 does!

[KRG]

Vipul:
On Dlr/INR pls try these links. My own feel is that a spike to 51 should offer a good shorting opportunity

http://sites.google.com/site/krgishere/files/DLR-INR-Weekly10yrs.gif?attredirects=0

http://sites.google.com/site/krgishere/files/DLR-INR-Daily-5yrs.gif?attredirects=0

[Tartan]

I currently subscribe to Neely's S&P Trading Newsletter. I am thinking of also subscribing to his Euro, T-Bill and Gold Trading Services. I am sure that other's here subscribe to all four services. How have his calls been on Euros, T-Bills and Gold?

On the S&P service (to which I currently subscribe), Neely has gained more points over the past year on weekly trades relative to daily and hourly trades. But in entering each trade, I am constrained by the total dollar risk that I am willing to take. Daily trades often (ususally) have a much smaller number of points being risked. The net result is that I can enter into a larger number of S&P contracts with the same total dollar risk on hourly trades than I can on weekly trades. All this to say - my sense is that Neely has gained more points per point risked on hourly trades relative to daily or weekly trades. If so, then in my mind his hourly trades have been more successful. I have not actually done the tracking to be sure, so I thought that I would ask if anyone ever looked at Neely's results in this way?

[KRG]

Tartan : I think Neely is good on Euro & Gold as well. He got some major moves last year with wonderful timing

I feel that eventually, a trader (or an active investor) will take his own call. I doubt if anyone goes by all the trading ideas given by Neely or others. Therefore, I think his forecasting service providing the bigger picture may be of more use

Cheers

[DG]

For those who think that upper channel line will actually be real resistance for the SPY, if we go under 90.17 before 9:42 Central Time, a short with a stop at yesterday's high is appropriate according to NeoWave rules.

[Wavist]

All this to say - my sense is that Neely has gained more points per point risked on hourly trades relative to daily or weekly trades. If so, then in my mind his hourly trades have been more successful.

Neely's track record with gold and eur/usd over the past year has been a lot poorer on hourly trades than longer timescales as far as I can recall. I believe that his hourly gold trades have actually produced a pretty significant loss over the last six months. And considering that weekly traders are way up over the same period what you need to ask yourself is whether you'd prefer to take more trades with higher leverage and watch your balance shrink or take fewer trades with less leverage and gain. Unless this has just been an anomaly of course. DG will be able to to tell you, he's tracked his record over a decade or so.