Spot the SP 500 Trend

Hello BBTL Blog followers,

The weekend markets are closed allowing for further SP500 trend and cycles analysis. I enjoy weekend financial analysis, in a calmer closed market period, allowing for reflection on the financial information in a logical concise manner.

Yet in the end, I do not have a great deal to add this weekend beyond what I stated last week. Overall, my trend and cycle forecast thus remains down in an Elliott Wave four scenario.

That stated, admittedly the SP500 index is now resting at a very interesting and important inflection point, as it heads into what could become a very volatile USA Thanksgiving holiday week.

We therefore caution to prepare yourself for some possible fake-out financial moves in either direction especially tomorrow and Tuesday morning. Given this possible confusion factor, today I will attempt to make clear - the truer market trend, by using some simple, yet powerful technical analysis rules and definitions.

Normally, the upcoming USA Thanksgiving Thursday holiday which is immediately followed by the first big Christmas shopping day known as black Friday, has a positive market bias.

Then, once this super-sale weekend shopping ends, financial analysts everywhere will decipher the weekend same store sales, to determine and forecast the full December 2010 shopping outlook, which needless to say is critical to many retailers hoping to boost annual sales and profit.

Yet, in a nutshell in 2010, even bigger events than normal and high volatility could commence during the upcoming week. Why?

Consider the ever looming economic uncertainty, the reluctance of the USA consumer to spend, the very high USA unemployment, and the ongoing global angst of the Bernanke save-the-USA-economy money printing, which so far has been completely ineffective and adds risk and tax liability.

From a more scientific and math perspective, if we look at recent technical charts and trading levels in the past few weeks, one pertinent technical analysis and math pattern now stick out as - most important.

The SP500 is currently sitting at effectively the psychological level of about 1200 points.

Using Fibonacci definitions in the shorter term, it now rests at the 50% retracement level - exactly between the recent high and low.

Essentially, the 1200 level is 27 points up to the former 2010 high (1227) as set in early November, and equally, it is also 27 points down to the recent low at 1173 made just last week in a sharp sell-off.

The question is now what?

The only way one makes a profit is to understand the current trend and go with it. This is why our blog title today of spot the trend is exceedingly important. Here is where a simple trend definition can become invaluable.

One of the more useful textbook definitions of a bullish trend is a series of higher-highs and higher-lows. Conversely, a bearish or down trend is a series of lower-highs and lower-lows.

For now, again the SP500 sits exactly in the middle of two very important support and resistance levels at 1173 and 1227.

The key question becomes; will it first take out the resistance high of 1227, to thus confirm a bullish uptrend, or alternatively, will it soon take-out the former support low at 1173?

In my own analysis, given the chance for early week pre-Thanksgiving holiday optimism, I would not be completely surprised to see the SP500 index open the week and trade modestly higher by even 7 - 15 points.

Yet frankly, a small rally or small sell-off in any direction is still generally meaningless.

The concept here is that we are attempting to confirm the trend direction by using key support and resistance levels. This means we must first bullishly take out the former record 2010 high (at 1227) or alternatively, break below the recent important low at 1173.

Later as our holiday week develops, volatility may pick up significantly, as global institutions begin to hedge their seasonal bets with either large buy or sell tickets.

By the way, although I cannot discuss all of our KRTT analysis tools for brevity and time, this higher volatility concept this week is also completely in line with our cycles and other technical tools forecast.

Some of these have been highlighted on the blog recently such as: Coming Fibonacci Event

For now, my bet is the recent SP 500 index low at the SP 500 1173 level is the likely candidate to be taken out first.

Remember, the very instant this 1173 level low is taken out this week or next, it would immediately confirm the down trend as in place by the definition of a series of lower lows and lower highs.

As always, there is never an absolute financial guarantee. After all, the financial markets are no longer freely traded.

Who knows if Bernanke, the FED, or the PPT will play scrooge in 2010, or alternatively, in another act of their money-printing desperation will come to the equity market rescue in possibly manufacturing the biggest ever Santa Claus rally.

There are two charts below with mark-up comments for your perusal. Enjoy.

Spot the trend.

Sincerely,

James Kelly Sr.,
Editor in Chief, BBTL Blog
www.KRTT.com
www.Facebook.com/KRTTcom
www.twitter.com/KRTTcom

Mark Carney Speaks to Michael Enright

CBC's Sunday Edition's Michael Enright had a 15 minute conversation with Bank of Canada Governor Mark Carney. You can listen to the entire interview here (hour 2, about 10 minutes in).

The most cutting point he made is transcribed below, at about 26:00 on hour 2 (emphasis mine):

Michael Enright: You expressed concern publicly for a long time I think from the moment you took the job about household debt in Canada. I think it was running somewhere around $40,000... and you're concerned about that. Interest rates are very low at the moment. Is there a correlation between the lower the interest rate [and] the more likely it is for people to take on more debt?

Mark Carney: Well this is the concern. Interest rates in Canada are low, abnormally low, exceptionally low...

ME: Are they emergency rates do you think?

MC: Well we had them at emergency levels from April of last year, in April of 2009 after the crisis...

ME: Right.

MC: The Lehman crisis. We got them down to 25 basis points and we further increased our balance sheet beyond that. But we moved them up from emergency levels because the Canadian economy is back at the level we were before the crash, we recovered all the jobs we lost during the crash, and things have moved quite positively for Canada. But they're still at exceptionally low levels. And the risk is that Canadians, some Canadians, take on debt on the assumption that interest rates will always be this way.

ME: Or they're here now, they look pretty good and they'll probably stay that way for a while.

MC: Excatly. And particularly when one thinks about mortgage debt, thirty year mortgage debt, that is not a sensible assumption. And our concern is that people will get themselves into positions which will make it very difficult to service their debt.

ME: But you can't say, wait a minute folks, I wouldn't go and buy a summer cottage because something might happen in the next 6 or 8 months. I mean, that would send Bay Street spinning, wouldn't it?

MC. No. We're taking a longer term perspective on it and we're providing as much transparency as we can about the future path of monetary policy, as much as appropriate. The one thing we can say with high degree of certainty is that over a thirty year mortgage interest rates are not going to be at the same level as they are now, they're going to be higher, and that Canadians, individuals, should be comfortable that they can service their debt at higher interest rates, and the banks that lend to them should also be comfortable about that.

That's central banker speak for "Wake the f&%$ up, Canada."

And, for macro nerds, on "currency wars" and exchange rate management:

ME: The huge worry going into the G20 and we read about it all the time... is the possibility of a currency war. First of all what is a "currency war" and if one breaks out is Canada protected?

MC: Well it's not a term that we use but the concern is that there will be a series of countries will engage in what is effectively competitive devaluation. They will hold down the value of their currency relative to others and that the number of these countries and the weight of these countries will be such that unsustainable adjustment will be pushed on other countries...

ME: To do the same...

MC: Yes. And other countries whose currencies float such as Canada. So in the extreme earlier this fall you had roughly 40% of the currencies by trade weight -- with the US dollar -- so in relative importance four of those 10, or 2 out of 5 of the currencies that trade with the US in importance managing their currencies to some extent.

ME: Gaming the system I guess... Is that what it is? It's like a trade war only you're using currency instead of goods.

MC: Yeah, you're using currency instead of tarriffs, and the issue is, the fundamental issue, is that doesn't work in the long term. You can cause damage to the global system in the short term, but it doesn't work in the long term because ultimately, those adjustments to currencies will come through relative inflation differentials, if nothing else. And if you'll allow me a second, the issue right now is that, let's take between China and the United States, and if China's currency doesn't move, the other way for China's real currency to move, in other words the real value of Chinese goods to increase relative to US goods, which is the same thing in effect, is there to be higher inflation in China than in the US. And what we've seen in the last few months, which we've been saying at the Bank [of Canada] for years, is that Chinese inflation's accelerating and US inflation is decelerating. And so you're getting a more difficult adjustment than you would have if currencies were allowed to adjust.

ME: If the worst-case scenario gets into play, is Canada going to get caught in the crossfire? What protections do we have?

MC: Well we have a number of protections. I think the short answer is no, I mean we're not naive in this situation. We have a number of tools: in the extreme we can intervene in currency markets if extreme movements in our dollar seriously threaten economic outcomes in Canada and those are decisions taken by the Minister of Finance and the [BoC] Governor. They are extreme... but we have tools there. We, very importantly, and I think it's important to understand, our level of currency is very relevant for the Bank of Canada's mandate, obviously. It affects the outlook for inflation in Canada, and if it were to threaten our ability to achieve our inflation target, which is what we're accountable...

ME: the 2%...

MC: The 2%. That's what we're accountable to parliament and Canadians for, we would adjust policy. And we have flexibility in policy here in Canada and we would not hesitate to use it if it were appropriate.