Pure Guesswork

"People are scared to death," said Bill Stone, chief investment strategist for PNC Wealth Management....
Are we capitulating?

So far it has been three steps down. Last August was 23.6%, then after the phony rally of October, we had a low in March at 38.2%. Then today we hit 50%.
Shown in greater detail on weekly chart.

Of course, if this 50% level doesn't hold, we have a rather long way down to the next level of support. Another 100 S&P points or so.

UPDATE AT MARKET CLOSE--4:00 PM
Not good. After bouncing off that 50 % fibonacci level around 1:30 PM or so, and then trading up 30 points, the last hour saw a steady renewal of selling, a new low at 1155.9, and a close near enough to say we closed at the low of the day (1156.2).

Posted by Pure Guesswork at 1:00 PM | Permalink | Comments (0) | TrackBacks (0)

Updating this post from Monday night / Tuesday morning, the support of last Friday at the 48.6% level truly became resistance. One time only was the market able to push a few pips beyond this level, but without conviction.
An 8 hour chart:

An attempt was made on Tuesday afternoon in US trading session, Though it spike up to 1.4225, the highest hourly close was 1.4194.
A 4 hour chart:

Next stop 1.3825.

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Possible impulsive pattern on shorter term basis.

Posted by Pure Guesswork at 8:29 AM | Permalink | Comments (0) | TrackBacks (0)

Bottom line, the level I projected as support last night (1.4195) did not hold. The market might trade above this level again in the coming days, but it was broken so convincingly (and so quickly) today that it now looks quite possible the euro will trade down to the next fibonacci level (38.2% of the long term impulsive move, or a 61.8% correction).

On an 8 hour chart it is possible to see how that 1.4197 level provided an area for a bounce on Friday and Sunday night.

But also how it was soundly broken during US trading hours today.

UPDATE--Tuesday Morning, September 9, 2008
The market traded up to the 1.4197 fibonacci level overnight (1.4200 high) but failed to get over it. Current level (7:30 AM EDT) is 1.4152.

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An Historic Day: September 8 2008

A brilliant analysis of what happened today in the bond market by John Jansen. The fall in treasuries, predicated on selling less risky bonds in order to buy riskier assets was reversed when the mortgage market loosened up, creating a demand for treasuries from mortgage servicers. As John Jansen says, "Always expect the unexpected is a fine mantra to follow even in the bond market."

Posted by Pure Guesswork at 8:45 PM | Permalink | Comments (0) | TrackBacks (0)

Following up on this entry from August 18, 2008, a look at the entire impulsive move from October 2006 to the double top in April and July of this year. The market has now corrected more than 50%, of the entire move, specifically to the 48.6% level. (I know this level is a little arcane, but trust me, it has a mathematical basis when viewed in an expansive move like this.)

One can see that the euro initially gained some support at the 61.8% level, and in the post cited from August I thought that would provide a bottom. I was wrong. But this lower level could very well hold. In theory the level was 141.97, almost exactly the low on Friday (1.4195).

It is likely we will see a real rally from here, though just what form it will take is uncertain. The actions of this weekend vis a vis the GSEs so far this evening (8:30 PM NY time) is moving markets counter to risk aversion. S&P stock futures are up 30 points, treasury bond futures are down over a full point, the Nikkei is up over 250 points. This reaction might prove to be over optimistic. But it should help the euro. The yen, meanwhile is sinking, another sign that risk aversion is momentarily off the table. The eurjpy pair could be even more of a winner than eurusd.

Posted by Pure Guesswork at 8:49 PM | Permalink | Comments (0) | TrackBacks (0)

It now looks as if EURGBP has built another base between June and August for this latest move up. The high on Thursday (from which is rapidly retreated) was at the 1.618 delta level of this new alpha-beta base. The 2.618 target would be around 0.8425.

It is useful to note that while the recent highs at which the euro has traded against sterling have been noted as "all time highs," that only goes back to the official creation of the euro as a hard currency in 1999; if you go back to the early 90's and construct a chart using a "synthetic" euro based on the DM and the ERM, this pair traded above 0.9000.

Furthermore ,on a monthly chart, we can find a higher level pattern which would also show a likely target around 0.8425.

Posted by Pure Guesswork at 5:48 PM | Permalink | Comments (0) | TrackBacks (0)

U.S. treasuries were soaring last week as foreign accounts unloaded agency debt and replaced it with official government paper.
The move off the low in June happened in a 3 wave correction.
Weekly chart of the nearby 10 year future:

On a daily chart one can see how the third wave of the correction traded up to the 1.272 fibonacci level, then found some resistance. Then on Tuesday of last week it broke through this level and moved swiftly up as the switch from agencies to treasuries accelerated, bringing it on Friday to the 1.618 level. The news on Friday afternoon that the bail out of the GSEs would occur over the weekend (as it has) broke the rally, and the market fell back to the 1.272 level (making Friday a key reversal day).

The implicit guarantee of GSE bonds is now explicit. The result: this afternoon the national debt of the United States of America increased by 5,400 billion dollars. There is now no good reason to switch from agencies to treasuries. Bunds, anyone?

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An update on yesterday's post on USDJPY. At that time the USDJPY had pierced the 38.2% level of the entire delta move from the beta low to the 2.618 target met on August 15th. The next target down was the 50% level around 106.60. A sharp move down went through that level and then bounced very strongly off the 61.8% corrective level (which corresponds to the original alpha level. It has since been trading around the 50% retracement level; after the bounce off the 61.8% support the range has been from 107.30 to 106.15. It is likely--after a spike low and subsequent recovery--that we will see the market slowly trade down to test the 105.65 level again.
Shown on an 8 hour chart:

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One Quarter of US Bonds risk ratings downgrade
One-quarter of current US ratings are at risk of being lowered as the credit crisis continues, aoccording to Standard & Poor's.

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Delta 2.618 target was 110.75. Actual high on August 15th was 110.65. A bit of a strange pattern for the 3 wave delta pattern after the alpha-beta base was formed. Having risen above the 1.618 delta target, the market then made a 3 wave corrective pattern that fell deeply into the base (falling, in fact 61.8% into the base). This seems to happen more often with the yen and might have to do with its close connection to panics in the financial markets as a whole. The corrective pattern corresponded more or less to the period when the pullback in the S&P from the May highs began to look more and more not like a correction to a further move up, but as a new leg down in the bear market. The low corresponded more or less to the mid-July low of the S&P right at 1200.

The second chart shows the internal fibonacci levels of the entire impulsive move. A fall to 106.60 would be a 50% correction. On Monday, September 1 (the Labor Day holiday in US) it had bounced off the 61.8% level. At that time it looked as if it might move sideways between that level and the high at 110.65 for a bit. But that, obviously, was not to be. It is trading right now below 107.55, the 61.8% level that held on Monday.

Next stop 106.60 to 106.50.

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Weekly:

8 hour:

Notice how between August 13th and the 22nd the market found some support around the 1.618 target before continuing its fall.

1 hour:

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