The Bear Who Stays Too Long…..
Courtesy of Karl Denninger at The Market Ticker
…. often gets his head cut off – as does the bull:
July 6 (Bloomberg) — The euro may advance to a two-month high against the dollar after breaking through the so-called neckline of an “inverse head-and-shoulders” pattern, according to Forecast Pte.
He’s talking about this….
That would put the target around 1.32. But he’s looking for 1.27, which is closer to the top of the channel that, with the exception of an underthrow, the Euro has been tracking since November.
A retrace up to levels from May could easily result in the SPX bouncing significantly – perhaps as high as 1100.
The fly in this ointment is the Yen, which shows no sign of stabilization, and in fact is in a rather dangerous position technically, having violated – albeit not with a lot of conviction – key support around 88.
The problem with this chart is that there is precious little in the annual chartwork below this level down to ~85, and below that lies only some very long-term lows back from the 1990s:
Disintegration of the carry, which appears to be shifting away from US influence entirely, is not positive at all for stocks. Nor for really much of anything else, except perhaps for the dollar – at least in the short term.
One has to wonder if this prognostication will play out in the Euro. Certainly, the pattern is there, but when one looks at the macro economic picture it is hard to come to the conclusion that Europe is going to actually manage to get their deficit spending under control, announced austerity plans or not, and it is further difficult to believe that the ECB will be able to maintain it’s "QE" sterilization measures, given that they’ve already suffered one failure. Further failures could hardly be seen as Euro-positive.
From my perspective I’m looking to the channel for guidance; a nightmare scenario for those who are Euro-bullish would be to trap them in a nasty short-covering rally up to the top of that channel on the faux hope of the inverted head & shoulders pattern, then fail and collapse.
Needless to say such a pattern would likely have some ugly consequences in the stock market as well – perhaps a short but sharp move higher on the faux belief of "stabilization", only to be followed by the mother and father of all declines when it becomes clear that it’s not going to work – as the Euro collapses toward and perhaps even beyond parity with the dollar.
Beware the Pied Piper.
