Friday, February 12, 2016

ZeroHedge: The Great Reset


In December’s article “The Yellen that Stole Christmas”, the point was to show how buyers in the SP500 were caught above 2040, and needed a Yellen rescue.  The market attempted to breakout to start December, however the rug was pulled from underneath as Yellen reiterated a rate cut later in the month.  After bluffing the market for 2 years on this rate cut, the call fell on many deaf ears.

So it was. Buyers were left caught at higher prices, betting on a “Santa Claus Rally” only to be hoping for Yellen to save Christmas.  For the first time in 6 years and exactly 3 years from December 2012’s FOMC that placed a 6.5% target on NFP for a decision on Fed Funds rate, the FOMC reset the market and hiked the Fed Funds rate by a quarter point.  Bulls did not get what they were looking for and saw the market fall back to retest 1982 support.  The level barely held on December 18th, as the market rallied back for Christmas holiday and the “Santa Claus Rally” was actually a gift from Yellen for stuck longs above 2040 to “breakeven”, or as we like to call it “get out of jail free card”. 

The bounce back to retest the FOMC high gave these buyers their opportunity to exit at breakeven.  As new buyers failed to step in and carry the ball above the FOMC high, remaining longs that became stubborn and did not take the breakeven out, were left to close the year lower at 2035.  They say fear turns to greed at break even.  The SP500 started the year of 2016 with no holds barred as it flushed to run stops below 1982 to punish greedy and trapped buyers above 2040, giving way for the market to retest the August low and fill the gap down to 1940.  Attempt to hold this level was seen, before falling into next gap at 1875 where once again the market fought to hold.  Both levels eventually failed as the overhead supply gave way for the market to breach the 2015 low of 1831 and take out the 2014 low of 1813.  Lows of 1804 were made in the month of January, before bouncing back to retest old support at 1940 and finding the level to turn into new resistance. 

Remember it was the BOJ that stepped in October of 2014 at 1970, and again in October of 2015 at 1970 again.  The Japanese bought Yellen a year of time, and gave her a market of 2070 to hike rates.  Now that the market has fallen back to the August low, it is the BOJ who has turned their monetary policy to negative rates.  What does this tell the market? That after attempting to pump it twice above 1970, with the market at 1870 they have switched to negative rates. Sign of desperation? So far the market is not buying it.  An attempt to rally was seen, only to find old support at 1940 turn into major resistance as the market double topped.  Going forward, failure to recover above 1870, gives room for the market to push into next major support at 1750 to retest the 2014 low of 1732.  Buyers must recover through 1890 for a retest of 1940 resistance in attempt to retrace back to the failure at 1980.  Yellen is expected to testify today, and once again bulls are in trouble and looking for help.  Even if she mentions negative rates, remember it will not be the first time. It was Yellen that said “Negative rates are not on the table right now” on October 22nd which many also did not notice, was another factor in the upside squeeze.  Did the BOJ copycat the move?  What we know is our central bank has moved into a hiking position, while other central banks are trapped and have gone negative. 

This is the great reset, because 3 years ago when 6.5% was placed as a target for unemployment, the SP500 was trading at 1400, gold at 1700, and the 30 year bond at 148.  In the year of 2013 we saw the SP500 run away as it freighted toward 2100, whilst gold and the bonds dropped lower.  What have you noticed take place after this rate hike?  The SP500 has changed course lower, while gold and the 30 year bond market have reversed higher. 

Gold fell from 1700 down to 1200 from December of 2012 to January of 2014 when 6.5% NFP target was met.

With the objective met, the gold market attempted to reverse course as it rallied up to 1392.  The market failed to take out its prior high of 1434, keeping the bearish trend in control and as the market found the FOMC was not going to hike rates, this gave way for gold to wind down again.  Since these highs the market has coiled lower, making new lows for the year of 2015 in December at 1045 just before Yellen’s rate hike. After her hike, the low was retested and held, and gold has since then been in reverse as the news is being sold (in this case bought). Gold has taken out its prior high of 1191 from October 2015 to stop some shorts.  The U turn gives room for an attempt to build a base and try to target next major resistance against 1270. Gold remains in a downward trend, however the recent U turn, gives room for an attempt to build a base and target next major resistance against 1270. Pullbacks are to be defended down to 1120-1080, with stops below the year low of 1061.  A breach of the 2014 high at 1307 squeezes out the short side to give the market room to retrace back to 1550, from where the market broke down in January of 2013 from the FOMC decision.  

The bond market also front running the 6.5% objective as it traded down from 148 to 127 in January of 2014 as the 6.5% unemployment target was met. 

The bond market in contrast to gold, sp500, and the yen, called the FOMC’s bluff on not raising rates, and rallied all the way to take out the 2012 highs to make new highs up to 16627.  Since this high and pullback to the 2012 level of 148, old resistance turned into new support as the market consolidated into Yellen’s 2015 rate hike.  As we see, the bond market not only front ran this rate hike, but has continued to march higher following the decision.  The uptrend in 2016 being fueled recently by panic buying as investors see Japans negative decision as a bull trap in stocks and use bonds to hedge positions.  This panic buying, has given way to take out the 2015 high as the market has gone parabolic.  Continuation of the move sees next resistance against 171.  Failure to expand above new highs sees sell stops below 16228 for a retest of the February lows of 16015. Breach of this level is needed to trap panic buyers above to give way into 156 to test major support off the year low of 15309.  Pullbacks should be defended, and a break of the year lows is needed to create a double top. 

A rounded top and a failed breakout in December, giving way for the move down to retest August lows. 

January pushed down to take out the lower vol window at 1869 before bouncing back and rejecting the 6 month pivot at 1922.  Hold below 1869, gives the market room down to next support at 1750, and ultimately a retracement of the breakout from December of 2012 down to 1420.  Recovery through 1870 will have the market working against major resistance being the 6 month pivots, with room up to 1980 to retest old support.  The “Great Reset”, gives the market room to retrace down to 1400 of where the market broke out.  One thing is that many of the bulls that were dismissive in January and laughed at the bears, are laughing no more and have actually turned bearish themselves.  This can give way for the continued bear market rips we have seen, as well as panic selling as the perma bulls are forced to come to the realization that the party is over.  Once again however, bull awaiting Yellen to save the day…