Weekly Overview for June 16th

This week all the major indexes ended in the red with the Nikkei leading the pack losing 3.5 and 3.4% respectively. The FTSE, CAC and the TSX all lost around 1.55% along with the Dow and the NASDAQ. The S&P lost the least coming in at the end of the week only down 1. %. The USD had another losing week down 1.36%.

This week’s US fundamentals came in better than expected yet lukewarm once again with the headline retail sales numbers printing better than expected at .6% vs. .4% eyed—up 5 tenths of a percent from the previous .1%. However the unexpected percentages were because Americans ran out and bought more cars—for the Retail Sales Ex Autos came in at the .3% consensus down from the previous month’s .5%. Not only this, but Retail Sales for April were revised down from .6% to .5%. There is no doubt that Americans are spending money, although, I see it as troubling when taken with respect to the anemic wages, lackluster manufacturing data and costly service sector weighing in on the US debt. In lieu of this, however, and along with the lower Initial Jobless Claims Numbers, Wall Street bid up the Dow 251.8 points to 15,207 before it fell off on Friday the next day. It seems like Wall Street is grasping for whatever sign of life it can get. Reuters/Michigan Consumer Sentiment Index printed lower than expected coming in at 82.7% vs. 84.5% consensus leaving me with the feeling that this number just might be heading lower in the weeks to come. The VIX moved up from 15.16 to a high of 18.60 and closed the week at 17.5% with the RSI poking just .6 above the 70 overbought line. Once again, even though consensus is a bit complacent, fear is creeping back into the market. Notice also the bottom set in at the 12.30 level.

The VIX Weekly

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However, looking at the Dow on the one hour, it looks good for a buy. If the larger move up from the November 16 low of 12,471 is an impulse, then that would leave us 8 waves with a final fifth wave up to finish off the extension. Now, could this move down be the one that put in a top and the index is heading down now? Yes, it could be for the count up can be counted as complete. However, the move down from the high is very choppy and overlapping leaving me with the conviction that this drop is a corrective move down. This leaves the question of whether or not this is a completed zigzag or just the first leg of an incomplete flat. Proportionately, I am counting the three wave move down from the top at the May 22nd top at 15,542 as complete because of the 2/4 line break of the previous impulse of lesser degree. Plus, looking at the index from a one hour, the moves up are very impulsive looking and do count as fives on the 15 minute charts. However, the index could consolidate here for a bit and carve out a triangle making the flat scenario more likely. I am looking for a good impulsive move up on Monday breaking the 15,300 in good wave three fashion as confirmation.

The Dow Daily and Hourly

dow

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It appears the Dollar Index has bottomed at the 80.50 and could correct up to the 82.03 which is the 38.2 retracement of the move down from the 84.50. If I am right and this is a correction then the 61.8 would leave the index moving up to the 82.97 handle. But being that the move down is so strong, the correction up may be shallow. Next week is loaded with market moving fundamentals with the UK and the US coming out with CPIs on Tuesday right before the BOE minutes and the Feds Monetary Policy Statement and press conference on Wednesday.

The USD Index

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It will be interesting to see what happens to the Japanese markets and Yen the coming week. The Nikkei has been taking a beating and the Yen has been moving up against the buck and the crosses. Looking at the USD/JPY daily chart the move down from the 103.73 high looks like a five wave move which means that we may get a pull back for a b wave of three down. Five wave moves are not complete corrections. This bodes well with the US index expected move up. The Nikkei isn’t as clear. It has already retraced part of the move down by 38.2 and could move down some more. However, the moves up from the 12298 look impulsive with three wave moves retracements. The Japanese index appears to be tracing out what looks like a pair of 1/2s for a bigger move up. The Nikkei has to take a breather and this looks like a good place for one.

The USD/JPY could also be retracing anywhere from the 97.63 to the 99.96, which are the 38.2% and the 61.8% retracements of the move down from the high—two common Fibonacci relationships for a b wave correction of a zigzag. However, one must keep in mind that the wave three down is quite sloppy and that it could be counted also as an incomplete zigzag resetting at the 144 SMA dotted tunnel line. Japanese numbers came out ok last week with Consumer Confidante ticking up to 45.7 beating consensus at 44.8. Eco Watchers Survey moved down to 55.7 Current and 56.2 Outlook—both number seen as negative. Machine Tool orders moved up from the -23.6 to -7.4 reassuring manufacturing a bit. Machine orders were also sunny spot for business confidence in land of the rising sun beating consensus at -1.1%. With these better than expected numbers the BOJ came out and didn’t give the extended QE the FX market was looking for which many believe to be the impetus to the violent USD/JPY sell off.

USD/JPY and Nikkei Daily and Hourly

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UK housing beat printing 5% vs. 4% up from the previous 1%–a good sign of recovery. UK Factories and mines also looked good with Industrial production beating also -.6% VS -.7%. Manufacturing however missed contracting -.5% vs. -.4%. The employment picture was very supportive of the UK recovery with Claimant Count change for May beating at -8.6K vs. -5.0k eyed. Average Earning including Bonus also beat at 1.3% vs. .3% consensus. The unemployment rate held steady at 7.8%. The pound closed the week up 1.4% on the buck. GBP/USD is coming up to some heavy trend line resistance on the daily and its approaching the Tunnel on the weekly, so it will be interesting to see what happens this week with the heavy calendar coming up for the US and UK. After the pound took a beating this spring it has definitely turned around and the fundamentals show it.

The Pound Weekly

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The EUs Sentix Investor Confidence for June missed coming in at -11.6 vs. -10 with the German CPI pining consensus at 1.5%. it doesn’t seem like the ECB is too concerned right now about loosening and are waiting for more numbers to come out on the EU economy before they commit either way. The EUR/USD ended up 1.5% for the week and is sitting at the 61.8 retracement of the move down from the February 1st high at 1.3711.

EUR/USD Daily

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The Commodity Dollars were mixed with the CAD up 1.7% on the buck but both the NZD and the AUD losing 1.09% and 1.19% respectively. Canada started the week off with good housing numbers beating expectations at 200.2k. Canada has been coming out with very good numbers lately. If the US decides to talk Dovish this week, we could see a big move up for the CAD.

Australia’s home loans missed printing .8% vs. 2.0% expected. Employment beat expectations coming in at 1,100 vs. -10,000 expected. This was a big surprise and considering the huge employment number of 45,000 from last month, the Australian economy doesn’t look at bad as the currency has been trading. Consumer confidence was up from the previous -7.0% to 4.7%.

New Zealand Credit Card Retail Sales beat at .5% vs. .4% eyed. Business NZ PMI also came in strong ticking up from previous 55.2 to 59.2.

The Commodity countries’ economies have been faring much better than the US’s, however, they all, even the CAD at the larger degree, have been losing to the buck. Keep in mind that these countries are not easing like the US. It makes me wonder whether or not the underlying sentiment is deflationary in nature. And all this talk from down under about their slowing economy when I see them in a much better light then the US by far. Since late April the CAD is down .99% while the NZD and the AUD are a whopping -6.07% and -7.72% respectively.

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The Federal Open Market Committee talk of the need to taper I believe is a bluff. Their stated goal was, in my words, to reflate the 2000 stock and 2008 housing bubbles simultaneously. But to their dismay, interest rates spiked and have begun to put a major cramp in the housing market. Last week I read that the housing market got a spike and foreclosures in the month of May. Now the banks are going to sell these houses into a market that is slowing. I don’t think the hedge funds are going to want to buy these houses when interest rates are rising. This week the 10 year Yield took a breather but it does look corrective closing the week at 2.14%.

Most analysts think that the QE expectations have been moving the buck. And they could be right. However, I am still very skeptical about this reason. Since the 2008 crises the dollar moved up from a 70.82 low to a high of 89.70 and has since been consolidating with a slant to the upside, regardless of the massive quantitative easing that has been going on in unprecedented magnitudes. I still think this recent dollar strength is due to tight credit markets worldwide. As I have mentioned, I do not think the Fed is going to exit at all—as for “tapering,” well maybe, but not much. I love the word they have chosen to plug—taper, which means to reduce amount at one end, a very vague expression to be driving the market. Is that the world we have come to live in where vague abstractions come to drive our markets? Remember that according to Dow, and Elliott Wave Theory, news and hype might move the markets from hour to hour and sometimes from day to day; however, on the bigger fractals, it’s the markets sentiment cycles that dominate. And I believe that these are driven by fundamentals too wide to be changed by Daily news and hype.

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