Dollar Index
DX, daily
Euro - US dollar
EURUSD, daily
Gold
XAUUSD, daily
Silver
XAGUSD, daily
S&P 500
SP 500, 4h
SWE 30 (OMX)
SWE 30, 4h
30 Year US Treasury Bonds
ZB, daily
Light Crude Oil
CL, daily
High Grade Copper
HG, daily
February 17, 2010
Elliott Wave update
There are lots of things going on in the markets for the moment, and the Elliott Wave patterns say that a critical juncture is fast being approached. Below are some charts with Elliott wave counts in the main markets that I follow.
Dollar Index
Dollar Index
February 12, 2010
Good fences make good neighbours
A former boss of mine was crystal clear on one thing: Good fences make good neighbours. This was said in the context within our company, that different projects could not be allowed to parasite on the others. That is, there must be well defined rules in a society and the members must follow them. Otherwise someone will be dissatisfied and the society as a whole will lose. The same could be said about the euro and the present Greek debacle.
The Greek problem in a nutshell
What is going on is nothing more than a vote of confidence in Greek debt. This is nothing strange considering that Greece have been bankrupt in 105 of the last 200 years according to John Mauldin. It would be remarkable if it didn't happen, would it not? Greece government risks downgrade to sub-investment grade resulting in that it cannot be used as security in the ECB and hence cheaply and risk-free financing Greek debt issuance. If Greece can't refinance its debt at a reasonable cost it will be forced into bankruptcy. That will affect not only Greece but also Euro banks which are loded with PIIGS debt. For example, the French exposure to PIIGS debt is $853bn equalling 30% of its GDP, and German exposure is $707bn which is 19% of GDP, according to Ambrose Evans-Pritchard in Markets fragile amid confusion over Greek rescue deal. If Greece goes bankrupt, then the fear is that Portugal, Italy, Ireland and Spain would follow, and in the end it would still be French and German banks that would take most of the loss from all this.
The problem is also the European power structure. The federal power is weak and real power is in the hands of the council of ministers. Here we find one of the fences in terms of a loyalty problem: does your loyalty belong to the European Leaders G&CC or your home country? This is evident now when France, that is worse off than Germany, with respect to PIIGS exposure, pushes Germany to bear most of the burden.
Implications on the Euro as a reserve currency
It is de facto German bonds that compare to US Treasury bonds when lowest risk bonds are considered. Others' are more spiced up higher risk variants. If Germany bails ot Greece the message is that the safest EU debt is no better than the average EU debt. This could seriously damage the euro's competition with the dollar as the worlds preferred reserve currency.
Moral message
The Greek problems have been known for quite some time, but it was Greek statistics fraud that gave Greece a 13% budget deficit overnight that made them urgent. In the mean time Ireland is struggeling and lowering salaries by up to 10% for all public employees, something that would be impossible to implement in Greece. Put in this perspective it is difficult to understand why Greece should be kept afloat. After all, Greece is only 2% of the EU economy. However, in a longer perspective the question is whether Europe should keep its internal fences and in the long run benefit from the single currency, or if it will succumb to a beggar thy neghbour approach where everyone is expecting a free lunch on the expense of the others.
The tip of an iceberg
Even if the EU manages to agree on bailing out Greece, it is only the tip of an iceberg. The Euro Zone is loaded with debt - internal and external. The only uncertainty is who will be next, because, for certain, there will be another one. Unfortuntaely the candidates are several: Ireland, Spain and Portugal, or maybe Italy? Europe is stuck between a rock and a hard place when dealing with its debt. There are no easy solutions and there will be pain. In the end it is only debt unwinding that will solve Europe's problems. One way or the other.
The Greek problem in a nutshell
What is going on is nothing more than a vote of confidence in Greek debt. This is nothing strange considering that Greece have been bankrupt in 105 of the last 200 years according to John Mauldin. It would be remarkable if it didn't happen, would it not? Greece government risks downgrade to sub-investment grade resulting in that it cannot be used as security in the ECB and hence cheaply and risk-free financing Greek debt issuance. If Greece can't refinance its debt at a reasonable cost it will be forced into bankruptcy. That will affect not only Greece but also Euro banks which are loded with PIIGS debt. For example, the French exposure to PIIGS debt is $853bn equalling 30% of its GDP, and German exposure is $707bn which is 19% of GDP, according to Ambrose Evans-Pritchard in Markets fragile amid confusion over Greek rescue deal. If Greece goes bankrupt, then the fear is that Portugal, Italy, Ireland and Spain would follow, and in the end it would still be French and German banks that would take most of the loss from all this.
The problem is also the European power structure. The federal power is weak and real power is in the hands of the council of ministers. Here we find one of the fences in terms of a loyalty problem: does your loyalty belong to the European Leaders G&CC or your home country? This is evident now when France, that is worse off than Germany, with respect to PIIGS exposure, pushes Germany to bear most of the burden.
Implications on the Euro as a reserve currency
It is de facto German bonds that compare to US Treasury bonds when lowest risk bonds are considered. Others' are more spiced up higher risk variants. If Germany bails ot Greece the message is that the safest EU debt is no better than the average EU debt. This could seriously damage the euro's competition with the dollar as the worlds preferred reserve currency.
Moral message
The Greek problems have been known for quite some time, but it was Greek statistics fraud that gave Greece a 13% budget deficit overnight that made them urgent. In the mean time Ireland is struggeling and lowering salaries by up to 10% for all public employees, something that would be impossible to implement in Greece. Put in this perspective it is difficult to understand why Greece should be kept afloat. After all, Greece is only 2% of the EU economy. However, in a longer perspective the question is whether Europe should keep its internal fences and in the long run benefit from the single currency, or if it will succumb to a beggar thy neghbour approach where everyone is expecting a free lunch on the expense of the others.
The tip of an iceberg
Even if the EU manages to agree on bailing out Greece, it is only the tip of an iceberg. The Euro Zone is loaded with debt - internal and external. The only uncertainty is who will be next, because, for certain, there will be another one. Unfortuntaely the candidates are several: Ireland, Spain and Portugal, or maybe Italy? Europe is stuck between a rock and a hard place when dealing with its debt. There are no easy solutions and there will be pain. In the end it is only debt unwinding that will solve Europe's problems. One way or the other.
SWE 30 update
The Swedish OMX 30 index is playing out a bit in advance of the US indices. My previous count still holds and an updated version is shown below. Having had a very complex evolution, Minute wave 2 is now in its final stage, after which we find ourselves in a wave 3 in 3. Hence, we should expect a rather fierce drop in SWE30 in the near term which is either today or on Monday if this count proves accurate.
SWE 30, 1 hour.
February 11, 2010
S&P 500 update
The working assumption for the moment is that Primary wave 2 is finished. However, what came next is not as evident. The previous count has not turned out satisfactory. There are several reasons for that with respect to shape and relations. Essentially I am dissatisfied with the previous Minor wave 2 resulting in a weak <38.2% correction which only lasted for 27% of Minor wave 1. Furthermore, the present correction, which is longer in duration than Minor wave 2, must in that case be of a lesser scale. All in all the count does not fit the present market, I think, why I prefer another count.
Below I present an alternative that I think has good potential. I have changed the end point of Primary wave 2. Which one it is is an even game since one peak is higher in the future and the other in the cash index. By changing the onset of Primary wave 3, I also get some balance between the corrective Minute waves 2 and 4. The bottom line with this count is that a Minor wave 2 may move all the way up to 1110 without any eyebrow needs being raised. Assuming that happens during the coming days the temporal realtion between Minor wave 1 and 2 will also improve significantly. As always, there are no determinsitic outcomes, only likelihoods, in TA but it is my top count for the moment.
Below I present an alternative that I think has good potential. I have changed the end point of Primary wave 2. Which one it is is an even game since one peak is higher in the future and the other in the cash index. By changing the onset of Primary wave 3, I also get some balance between the corrective Minute waves 2 and 4. The bottom line with this count is that a Minor wave 2 may move all the way up to 1110 without any eyebrow needs being raised. Assuming that happens during the coming days the temporal realtion between Minor wave 1 and 2 will also improve significantly. As always, there are no determinsitic outcomes, only likelihoods, in TA but it is my top count for the moment.
S&P 500, 1 hour.
February 01, 2010
The Euro and Greece
Over the last year the dollar has been constantly announced dead as reserve currency. The main reason for that is the huge deficits that the US are running where federal debt is now in the order of $12 trillions. The euro zone, it has been argued, does not suffer from the same huge deficits and is long term in a much better shape compared to the dollar. A reasonable effect would the above statements be true, would be that the EURUSD rise. In fact it did rise from March until late November 2009.
However, what does it say about a currency co-operation when Greece was allowed to enter the euro although it did not meet the requirements? In addition to that Greece is manipulating its GDP figures in order to avoid facíng severe penalties from the other euro member states. These, in turn, are unable to present a plausible solution to a very real problem - Greece defaulting on its debt. That the problem is real is supported by the following news item quotes from Bloomberg:
However, what does it say about a currency co-operation when Greece was allowed to enter the euro although it did not meet the requirements? In addition to that Greece is manipulating its GDP figures in order to avoid facíng severe penalties from the other euro member states. These, in turn, are unable to present a plausible solution to a very real problem - Greece defaulting on its debt. That the problem is real is supported by the following news item quotes from Bloomberg:
"The cost of protecting $10 million in debt from 15 European governments for five years hit a record $91,060 a year last week, about double both September’s cost and the current price for insuring U.S. debt, data compiled by Bloomberg show. Prices for Portugal, Iceland, France, Greece and Germany swaps have risen the fastest in the world this year and are up about 55 percent on average, the data show. Greek debt insurance is now the developed world’s most expensive at almost $400,000."
"The yield premium investors demand to hold Greek 10-year government bonds over German bunds widened to almost 4 percentage points last week, the most since the year before the euro’s 1999 introduction."
With a probability close to certainty Europe will again show indecisiveness. After all, that is what allowed this problem to grow this big in the first place, and now it will make things worse working out a solution. And on top of this European banks have lent massive amounts of money to eastern Europe and Latin America, money that to a large degree will never be paid back. The euro may be the long term preferred safe haven, but what does that matter when it is a short term unsafe haven?
At this moment it is convenient to have a look at the Elliott pattern of EURUSD. The chart is in itself a proof of which is the reserve currency of the world. Just have a look at October 2008 and March 2009 and see which currency projected strength at those instants. Your Honor, I rest my case. As can be seen in the chart below the euro started its decent late November. As of now we are in the early stages of a minor wave 3 that is likely to run for some time yet. A likely goal for all of Primary wave C (and Cycle wave C) is at least below Primary wave A at 1.23.
EURUSD daily
SWE 30 short term
The main Swedish stock index, SWE 30 presents few differences compared to other major stock indices. It presents a quite clear pattern actually. According to the below Elliott count, we should see a continued upward correction during the coming couple of days, after which SWE 30 will enter into a dramatic minor (or minuette) wave 3 down. A possible reversal point is the 61.8% retrace at 966 but the whole interval between 61,8% to 76,4% is filled with resistance.
SWE 30 1h
There are other Elliott interpretations implying that wave <2> is already finished or that wave <1> is still ongoing. The main reason why I believe that the correction is still in place has to do with the global stock market. There has been no significant correction since Primary 3 started and I think that it is about time. In that case it is highly unlikely that the Swedish stock market will fall when other markets rise. Wave <1>, on the other hand, could very well not be over. The answer to that we should find out today, I think.
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