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Wednesday, July 6, 2022

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Tuesday Tokyo Take-Down Trepidation

I think I've seen this movie before.  

Or, more accurately, I've seen myself on TV before predicting intervention by the Bank of Japan as the Dollar fell to these lows (131 to the Dollar) against the Yen, to the point where it began to impact the earnings of Japanese export corporations and forced Japan's Central Bank to take action to boost the Dollar and weaken the Yen, which has the unfortunate side effect of tanking the markets.  

They did this on August 4th (link above) when I predicted the 20% correction on the button (down to 1,100) and again on October 29th, when we cashed out our White Christmas Portfolio after catching the run from 1,100 all the way back to 1,292 (17.5%) and once again nailed the Yentervention, that came just 2 days later and sent the markets plunging back to 1,158 into the Holiday. 

Since Thanksgiving, we have gone all the way back to 1,333 – and that's 15% up from pre-Thanksgiving and 24% up from the October low at 1,074 and almost exactly 100% up from the S&P low of March, 2009 at 666.79.  666, as we know, is the mark of the Blankfein, so we take our numerology seriously at PSW – hallowed be Lloyd's name!

SPY DAILY Anyway, so we're up 24%, which is a bit much without a significant correction and let's say 1,100 is the proper base and 20% up from there is 1,320 and you can see from Dave Fry's SPY chart that we're into a serious zone of resistance here with a very toppy-looking MACD and RSI accompanying this quadruple-top.  

Yesterday we discussed some of the Global Macro forces at play but this morning we only have to look at Toshiba and Honda's quarterly reports, with both companies down around 70% in profits and issuing poor guidance based, in large part, on the too-strong Yen – to get a pretty good idea of the pressure the BOJ is currently under to take some sort of action right away.  

 JFE Holdings, Japan's second-largest steelmaker  posted their first loss EVER – also on Yen strength and their outlook for next year is break-even.  Demand for steel is slowing in Asia and Japanese Steel is far more expensive than competing, weaker currency-based manufacturers.  

UUP WEEKLY Last week, Japan had it's first overall trade deficit since 1981, if this spills over to affect their borrowing costs — well, it can't spill over because that would be a catastrophic event that would likely lead us into a full-blown Global economic collapse with Japanese debt at 220% of their GDP.  So, there really is no choice – the BOJ needs to begin printing Yen and using it to buy Dollars ASAP.  This morning, in Member Chat, we shorted Oil (/CL) at $100 (again) and the Russell (/TF) at 800 (again) and gold (/YG) at $1,750 on the Futures with the Dollar testing 79 as I think that should be the floor from which we can expect some action.  

Today is the last day of the month so I imagine we'll have another day to paint a pretty January but, after this – it's anybody's game and I really can't imagine the Japanese are willing to drop the ball on this one.  

We'll be looking for a 4-5% pullback off the top on our indexes, a move that should bring us back to about 12,200 on the Dow against a corresponding move in the Dollar back to 81 as the Yen is reset to about 78 to the Dollar.  That's going to top the Euro out at $1.32 and the Pound at $1.58 so those are the lines we believe the BOJ will draw in the sand this week.  

At today's open they have driven the Dollar back down to 79 so we should see an attempt to keep the NYSE at our 7,866 level as well as Dow 12,749 and our premise is blown if we hold those for more than 24 hours so it's going to be an interesting last day of the month and I'm sure all the stops will be pulled out to close us at the highs and, of course, give us that fabled "golden cross" on the S&P.  

After that – I wouldn't count those chickens before they hatch…

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Phil……..THANK YOU!………. never would have known.

Pros and cons of LTRO 2 for a Trillion Euros
 
one thing that got my attention in this article was the notion of Fitch and Moody's following S&P and downgrading Italy to BBB+, which means triggering a 5% margin call………..also, that the diversion of LTRO towards govt bonds is crowding out private loans.
 
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100014543/the-perils-of-mario-draghis-e1-5-trillion-blitz/

Good morning, 
maybe you have seen it already:
http://www.cnbc.com/id/46160875
"What’s more, the Pentagon can’t find documents to explain what it spent as much as $1.7 billion on from funds held on behalf of the Iraqi government by the New York Federal Reserve, the report says."

closed the long USD/JPY for a small loss……maybe look for 75.50ish.
 
closed the AUD/CAD short at pretty much even……….
 
made nice money on OIL and the ITA40 yesterday, but am stuck in a short ESP35 at an average cost of 8525 so need to work that out, but a relatively modest position size and will look to add higher up

Phil,
 
do you think the rally off the European open is probably related to Obama's plan to propose mortgae refinancing at much lower rates for the distressed?
 
side note……….seems like an obvious to rescue real estate and no doubt it was thought about before but nixed somewhere down the line.

Roro – no its about the PMI data in Europe and china
 
http://www.marketwatch.com/story/europe-stocks-rise-after-manufacturing-data-2012-02-01

Morning Phil, busy night?  The reduction in lending by European banks because of instead wanting to use their money for buying soveriegn debt is just one of those unfortunate, unintended consequences.  Kind of like the cost of gas and milk going up.  The central banks don't want it to happen but it's less important than recapitalizing their banks and propping up failed economies.  In the end, it simply means more printed money as the sovereigns fail to repay their bonds and the ECB steps in to bail out the very banks they manipulated into buying the smelly things in the first place.
 
As I said a long time ago, it's a global race to the bottom.  Currency devaluation is the new protectionism of the Depression era.
 
Care to expound on your statement below?  I haven't been able to follow close enough lately to undertand exactly what you're predicting other than Yentervention.  Is there more?  Thanks.
 
"Big Chart doing exactly what we expected – too bad bears are so impatient. " 

Ilene has  posted a very interesting article from Bruce Krasting about the CBO annual report.
I am just at the beginning but that will definitely help the political debate in the US.
Thanks Ilene

Phil, i had shorted a 117/118 TLT Feb 03 CALL spread (for .95), but just got assigned from the short 118 calls. It looks like TLT has a dividend that get's paid with and effective data of 2/1 (which is today). What's the best way for me to get out of this? Since the dividend date is today, i guess as long as i can close the position today, i should be fine and won't be accountable for the dividend? Reason i want to do this is that i got burned a little the last time something like this happened to me with SPY. The stock did not drop as much as the dividend was supposed to be and i lost money on that trade when i was not supposed to lose anything.
I guess i should try for a Buy Write of TLT stock and TLT 118 calls to get out of the trade? I hope it means that i won't have to pay the dividend as long as i close out the trade today since the Ex dividend date is today (and unlike last time where it immediately showed that i owe the dividend in my account, it does not show that this time).

CMG
Won't go near the restaurant after one very disappointing visit.  It was crowded doing nice business, mi esposa loves it.
BUT, Love the stock.  The short puts have been like a very very high quarterly dividend for nearly a year.  Don't stop this train.

Lionel:  Help it go in which direction, would you say?  Austerity? QE? Denial and strife?

samz…………..all of the pmi data was below 50 which indicates ec in contraction with the exception of the UK and that number was expected.
 
not buying that argument.
 
i am more inclined to think it was a bounce off of an uptrending support line (DAX, ITA40, ESP35, CAC UK100) which looks pretty similar/identical to the uptrending support lines also obvious on the Daily Levels as are seen in Elliot's charts for NA indexes
 
in other words central planning with the CBO report as a justification for FED QE along with Obama's proposed IR rate reduction for residential real estate mortgages…….fwtw

Phil, actually i've been doing quite well with these trades before. I usually sell the verticals short for .9 to .95 and account for the premium i paid by selling short puts in this case. My net is actually 0, and i cannot really lose money on the trade (the short puts is usually a spread as well where i cannot lose more than what i gain by the call vertical.
This is the first time i actually got assigned on it though.
Since TLT has been so volatile and range bound for the most part, playing this on TLT has worked out quite well.
I've learnt enough on this site to not pay premium unless i have to. This play is essentially a free play most of the time and pays off quite nicely when it does, with no harm done when it does not.

I might get lucky today hopefully with TLT dropping, since my long calls might retain some premium now that i can benefit from.

From FT: "The eurozone debt crisis has triggered a severe credit squeeze across the region with banks imposing significantly harsher loan terms and demand for credit tumbling, a European Central Bank survey has shown.
 
Banks’ weakened finances and worries about the eurozone’s future led to an aggressive tightening of credit standards faced by businesses and households at the end of last year and early 2012. Demand for mortgages and loans to fund corporate investment also fell sharply, the survey showed. Germany, however, remained immune.

The results suggested December’s unprecedented injection into the financial system by the ECB of €489bn in cheap three-year loans had failed to prevent a retrenchment by banks that could hamper the region’s economic recovery. The effects of the central bank’s actions are still feeding through, however…..”

SP 500 is looking to gap higher toward 1320 this morning…solid resistance at 1324…. I dont expect the upside gap to hold….  isn't much new to say this morning…market remains vulnerable a sharp… fast pullback…. VIX looks like ready to break higher… are multiple technical warning signs… but as phil and i know buyers keep showing up….sigh… 1312 remains a magnet for the SP.
 

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