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If I had a NIKKel for ....

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November 29, 2009 – Comments (7)

Wow binv, those are some really bad puns you are coming up with.

I showed my long term NIKKEI count back in September (Long Term Count of NIKKEI), and last week I showed a chart update on several Asian indices (Another Look at a Few Asian Markets).

I want to continue this train of thought with the NIKKEI. Here, first is the long term chart for reference, with the accompanying notes from my last Asian post:

Next is the old NIKKEI. Ouch. The long term chart tells the story of this Blue Supergiant, which burned so hot and so bright for decades, and is continuing to implode after fusing all that hydrogen into helium.

It has been leading down recently. And I think a lot of this has to do with the "carry trade" baton being handed from the Yen to the Dollar. So a fair question is, what happens to US markets when the carry trade gets handed off to somebody else? (Treasury Bond rates are a balloon being held underwater, but I certainly don't argue that rising rates will make the Dollar healthier. Far from it. Just more expensive. Riddle: Is a more expensive worthless dollar still worthless?")

7 Comments – Post Your Own

#1) On November 29, 2009 at 12:21 PM, binve (< 20) wrote:



So lets zoom into the daily chart. Just as the indicators were signaling a bottom back in 2008/early 2009, they look to me like they have been signaling a top as well. The NIKKEI has not made a higher high since August.

The long term count above shows a 5-wave move down with the NIKKEI starting its 5th wave. Since August the move does does not look like, nor does it count like a clean impulse. But you can see on the notes below, it does look and count like a leading diagonal feeding into a larger leading diagonal.

Columbia has been doing some *excellent* work in comparing leading / lagging major indices and has been using the NIKKEI has a leading indicator. This is well worth checking out: Follow the Leader?

The big question is, how does it handle the large support area it finds itself on right now? I don't have an answer to that question. But I see 2 main possibilities

1) It ignores it and breaks down definitively. This means the second leading diagonal doesn't really exist. However, if you look at the indicators, they are already oversold. So a breakdown here will get a bit of a run, but I doubt it will be a "crash"

2) It respects the support and bounces up. However this would be a classic technical bounce to burn off oversold. The bearish implications in this scenario are much more severe. The indicators have already shown significant bearish divergence earlier this year and I am showing below a potential Head and Shoulders setup of massive proportions. This would be a very big deal

So either way, other than for *very short term trades* the NIKKEI chart looks very bearish to me.

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#2) On November 29, 2009 at 1:07 PM, SolarisKing (23.33) wrote:

Good morning binve.

I recently saw a chart, and i think it was an EW chart, that showed the head and shoulders (S&P?) at a diagonal base and coinciding with an EW count. The post postulated that the last shoulder had been breached.

I think i actually got to that site from your site.
   http://marketthoughtsandanalysis.blogspot.com/

Personally i don't see how this could be the TOP because of my psychologocical 'theory' of 'maximum damage'. I don't think this could be the big top because  there is still money for the big untouchable scammers to make. Perhaps after Christmas they will run out of fake good news.

-solaris

Oh, and thanks for your work. +all recs. :-)

Oh, as far as our secret joke, and contrarian signal (as per our correspondence last week.. . . Yes, there seems to be 'bounce off resistance'.
   I am seriously considering a massive and risky change of direction for my caps port.

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#3) On November 29, 2009 at 5:53 PM, Tastylunch (29.21) wrote:

what happens to US markets when the carry trade gets handed off to somebody else

again the key is the when. The Yen showed it could take years upon years for that to happen. 

Unless China unpegs the renmibi, I have hard time seeing that happen soon.

 

The long term count above shows a 5-wave move down with the NIKKEI starting its 5th wave

aha I figured Japan would be closer to "the Bottom" than anywhere in the world. You have to wonder though with the huge generaional problems they have there if it will even rebound when it does hit Bottom. It won't be like the US in the fories. They will have a smaller population to work with than their precdeing one. Kind if unprecedented in the modern age...

 Riddle: Is a more expensive worthless dollar still worthless?")

I don't think the dollar will ever be "worthless" just worth a lot less if You know what I mean. :)

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#4) On November 29, 2009 at 6:15 PM, anchak (99.85) wrote:

Great thoughts Tasty!

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#5) On November 29, 2009 at 6:56 PM, binve (< 20) wrote:

SolarisKing, Thanks man :) And FWIW, I do not think we have reached the "top" yet. I think we will have one more advance in December. But I don't believe it will be a blow-out and I think the risk/reward for the intermediate term and certainly for the long term favors being short here. If you are interested in my short and long term projections, they are here: My Positions and Projections Thanks!

Tastylunch,

For claification, my agument for the bearish case for US equities and Japanese equities is not solely based on the carry trade argument. It is a contibuting factor, nothing more. Both will be headed down as a general asset class soon.

Also, when I say the 5th of 5, you need to look at my long term count. I do not think this is the 5th of 5 of the final move. I think this is the 5th of 5 of A of Y. I think the chart of US and Japanese equties both forecast long term weakness. Japanese to a lesser extent, but still far to fall relative to now.

I don't think the dollar will ever be "worthless"

Of course. And that was a bit of hyperbole on my part. I was hoping that was obvious. I don't think the dollar will ever carry no value, just a lot less value.

My statement is pointed at the deflationist argument that we will be entering a defaltionary period where "cash is king" .... whatever. The dollar is becoming economic toilet paper (and yes, even toilet paper does have some worth). Other currencies will fare much better, especially gold.

Thanks man..

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#6) On November 29, 2009 at 8:19 PM, Tastylunch (29.21) wrote:

binve

For claification, my agument for the bearish case for US equities and Japanese equities is not solely based on the carry trade argument. It is a contibuting factor, nothing more. Both will be headed down as a general asset class soon.

oh I know, but I expect it to be a largely contradictory force if your bearish scenario plays out (which you know I agree with you is likely). As we've seen (and you've proven) a falling dollar while typically not tightly correlated with rising stock prices can be powerfully additive in the right circumstances. I'm 100% sure the Treasury realizes this and has"learned this lesson" (just like letting Lehman fail was a "mistake")

 I'm sure at some point the USD will strengthen (it's movements are of course not linear), but something else has to be weaker to wholesale replace the USD as the carry trade.I do think like abitare does that eventually the Fed will raise rates to save itself and that could be your trigger event for wave 3. Overall though I doubt they will be successful in stopping the currency carry trade. A signifcant portion of the daollr's strength was based upon confidence in US macroeconomic health. I think that perception by foreign countries is largely gone now. Even if the Fed attempts to deflate that perception is not coming back soon.

The question I Have is what would that currency be? I don't see any good candidates (large enough and weak enough) at the moment. This is a relative question of course, after all the dollar can't be replaced unless something else replaces it.

Japan is at it's absolute limit I think to issue debt, China's currency doesn't float. The Real and the Rupiee are healthy (relatively). So that leaves what the Euro or the Pound? I just don't see a viable carry replacement candidate, maybe I'm missing something.

I might be wrong but it's the way I perceive it

 

 Also, when I say the 5th of 5, you need to look at my long term count. I do not think this is the 5th of 5 of the final move. I think this is the 5th of 5 of A of Y. I think the chart of US and Japanese equties both forecast long term weakness. Japanese to a lesser extent, but still far to fall relative to now.

whoops my mistake. I need to bone up on my advanced Ewave reading skills. Your nikkei chartis bit more complex than typical.

My bad.

Of course. And that was a bit of hyperbole on my part.

I know I was just funnin ya. :)  I do think some of your readers, might not be aware as I am of your sarcasm  though. It's hard to convey on the interwebs.

Sides it was too easy a setup to resist spiking. Sorry. :)

Other currencies will fare much better, especially gold.

Well I agree Gold will but I dunno if all other currencies will. If the race to stimulate keeps going we don't know who might do something even worse than what we've done.

I do think some like the Brazilian Real and the Aussie will continue vastly outperform the USD.

It is hard to inflate Gold supply though. :)

and yes, even toilet paper does have some worth

My favorite stat of 2008 was that YOY toilet paper sales were down 1.6% . You know times are crappy when ppl  cut back on TP. 

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#7) On November 30, 2009 at 9:14 AM, binve (< 20) wrote:

Tastylunch, Thanks man. I agree that the USD will not be replaced as the carry vehicle any time soon. But as you know I am forecasting a bounce (tehnically based) for the Dollar that should occur within a month and last 4-6 months. It will be interesting to see what macroeconomic shifts start to take place, and how many entities will misinterpret this as "the dollar gaining strength".

I know I was just funnin ya. :)  I do think some of your readers, might not be aware as I am of your sarcasm  though. It's hard to convey on the interwebs.

Sides it was too easy a setup to resist spiking. Sorry. :)

LOL! No worries man :) And that is a good point. Sometimes I think my sarcasm is obvious based on my writing history. And to long time readers that's true. But as evidenced by my exchange with topsecret on my last post, it is not always obvious. I used to make myself a /sarcasm/ tag, I think I need to reinstate it :)

I do think some like the Brazilian Real and the Aussie will continue vastly outperform the USD.

Most definitely. I think the Canadian Dollar will also.

My favorite stat of 2008 was that YOY toilet paper sales were down 1.6% . You know times are crappy when ppl  cut back on TP. 

LOL! Best line on this whole post :) Thanks man :). 

..

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