Bailout Athens Lacks Wiggle Room

BarroMetrics Views: Bailout Athens Lacks Wiggle Room

Peter Spiegel wrote an interesting piece in today’s FT (Bailout Athens Lacks Wriggle Room as Wrangling Rumbles On). Unlike many of the other pieces on Friday’s agreement, Peter’s piece focused on facts rather than the writers’ opinions. Unfortunately, I was unable to find the article with a Google search. Here is my summary….

Peter identified that Friday’s agreement failed to address many of the important issues affecting Greece’s finances.

Firstly, the Greek government won office when it promised relief from the country’s sovereign debt – amounting to 175% of GDP. Friday’s deal did not touch on the subject.

Secondly, while Greece’s creditors were willing to lower the surplus they required for this year, they agreed to do so because the Greek economy was performing worse than expected. This place the Greek issue into a quandary: on the one hand, the government won a measure of flexibility on the amount of cash that would be freed up; but on the other, that flexibility was limited because of the economic downturn.

But there is a deeper ditch that may cause a problem in the future: there was no mention of how much lower the targets would be allowed to go.

(By way of context, under the prior bailout scheme, Athens was required to run a primary surplus of 3% of GDP for 2015. That will now be reduced but by how much?).

Thirdly, the agreement was dependent upon the creditors agreeing to a list of economic reforms that the Greek government would implement to take the place of the old “austerity” measures. Whether or not the new measures will satisfy the EC has yet to be seen.

Finally, and possibly the most important, is when can Greece access the 7.2 billion? The timetable for dispersing the bailout was not discussed on Friday. This is the $64 question. It will be interesting to see whether this issue will be resolved without further crisis.

Greece

BarroMetrics View: Greece

The possibility of a Greek exit from the Euro Zone  increased to over 50% when, yesterday, a proposal by the Greek Government was rejected by Germany. So far all quiet on the market front, including the EURUSD.

Today there is a ‘final’ meeting scheduled. Unless there is some agreement, Greece is expected to run out of funds and accelerating bank runs will occur.

I must admit to be surprised at the lack of volatility exhibited by the markets. Have we really got to the point that all that matters is QE? It will be interesting to see what happens today if no agreement is reached.

Flu et al & Greece

BarroMetrics View: Flu et al

A killer flu is sweeping Hong Kong – there are fears will see around 200 dead and the epidemic last until April. Yours truly was struck down on the weekend and has only felt somewhat back to normal today. I have had the flu before but not like this: fever, runny nose, a chronic cough, congestion and phlegm. Luckily the only symptom remaining is a body filled with sore bones. Seeing the price some of the others have paid, I am one of the fortunate ones – especially if you consider my age.

My flu couldn’t have come  at a most importune time. Crude. S&P, AUDUSD and EURUSD all at critical junctions. I’ll say more about that next week.

Today let’s turn to Greece. At the Macquarie  Securities event on Feb 4, I said that one of the possible Black Swan events to affect the markets would be a Greek exit from the Euro zone. It is a ‘black swan’ not because it cannot be foreseen but because few believe it will happen; and most believe that even if it happens, there will be no contagion.

It’s now looking that the odds of a Greek exit have risen from improbable to possible. The next question is, what will be the effect?

My view is in the short term, a few hours or days of volatility, and then back to ‘normal’.  But, in the long term??? Given the feelings in Spain and Portugal,a Greek exit is likely to lead to an attempt to exit the Euro Zone there. And, if those exits happen, there will be contagion.

For me, Greece is like FACTA – quietly working away in the background, and by the time the  damage is seen, it will be too late.

Let’s see what happens.

Gold

BarroMetrics Views: Gold

First a comment on the AUDUSD. The 0.7750 level gave way, and the AUDUSD moved to the Primary Buy Zone. The price action suggests a move back to the Primary Sell Zone (around 0.7880 to 0.7850).

Turning now to the promised Gold comment. Gold is relatively straight forward.

Figure 1 is the 12-month swing (yearly trend). We have seen a correction to the 50% zone; and the time for development is complete – making it highly possible we’ll see the start of a move (up or down).

Figure 2 is the 13-week swing (quarterly trend). A similar story to the 12M: the time for development is complete. Note the possible Spring at A, suggesting a change in trend in the quarterly trend from down to up.

Figure 3 is the 18-day swing (monthly trend). We have a V-bottom change in trend (down to up). In a V-bottom, there are two possible buy zones:

  1. 50% of the penultimate down wave or
  2. the Primary Zone of that wave.

If I see a setup and trigger bar, I’ll take the trade.  The stop will be below 1168. I’ll apply the Rule of 3 to manage the trade.

Acceptance below the Primary Buy Zone will invalidate the V-Bottom assumption and suggest a retest of the 1140 to 1130 zone.

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FIGURE 1 12-Month

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FIGURE 2 13-week

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FIGURE 3 18-day

Rule of 4

BarroMetrics Views: Rule of 4

I’ll was gong to have a look at Gold today, but, I’ll leave it till tomorrow.

Today, I want to address a response  to some emails.

On Feb 4, I did a presentation for MacQuarie Securities, Singapore. In it, I made reference to the Rule of 4. I have received a number of emails asking me to give another example.

What is the Rule of 4? It’s an idea I first read in one of Gann’s books. The fourth attempt at a support or resistance should result in a breakout; failure to do so, means the opposite support or resistance will be tested and will give way. 

Figure 1 is the S&P example I gave at the presentation. (The S&P example is the 5-D sideways congestion I mentioned in yesterday’s blog). In Figure 1, I have marked in the three lows and possible third high.

What I said in the presentation was: 

Given the low at ‘3’, I expected an attempt at the high at ‘2’ to be challenged and to give way; BUT if the high at ‘2’ held, then we could expect the low at ‘3’ to give way because of the Rule of Four. (BTW, for those who have done the Barros Swing course, did you recognise the Negative Development buy signal at 3)?

 Figure 2 is another example of the rule in action. 

In Figure 2, I have marked in the zones: 

  1. Primary Buy and Sell Zone (PBZ, PSZ)
  2.         Maximum Extensions (ME)
  3.        Value Area High (VAH) and Value Area Low (VAL)  
  4.        The minimum price (Min) needed to complete the move from PBZ to PSZ and vice versa.

Let’s walk through how the highs and lows were formed as it is instructive.

  • A swing high and swing low are formed at 1.
  • The low at 1 is breached by the low at 2. Note that the low at 2 gives the same Negative Development Buy signal as the one in the S&P.  The buy signal suggests that high at 2 will give way. 
  • The high at 3 generates a Negative Development sell signal that fails. I’d have expected the low at 2 to be breached. Instead, prices turn up at the ‘minimum price level’ , without even touching the PBZ. Normally I’d see this a sign of strength that would suggest a breach of 3 and the probably start of a 5-D uptrend. 
  • This analysis would be supported by the fact that a test of the swing high at 3 would invoke the Rule of Four – this would give weight to the upside breakout possibility.
  • The failure of to reach even the PSZ suggests weakness and the Rule of Four suggests a downside breakout that has not been negated by Feb 11’s price action. This happens if prices touch the MIN at .7831.

Hope this clears any confusion.

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FIGURE 1 S&P

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FIGURE 2 AUDUSD

Crude Oil 2015-02-10

BarroMetrics Views: Crude Oil 2015-02-10

Crude Oil is, in its current position, difficult to analyse. It has moved 60.8 points in 150 trading days without a single 18-D correction. Since 1983, this has occurred only twice previously. In January 2008, it travelled 63.1 points in 119 trading days, and in July 2008 it moved 126.6 points in 152 trading days. The subsequent 18-D corrective stats showed a price retracement of  12 to 14 points in 10-24 days.  The problem is the stats are drawn from a small population, so their accuracy may be questioned.

If we assume the numbers are robust, then Figure 1 shows the current retracement price and time targets. Price wise the range is 54.00 to 58.00; time wise, Feb 12 to March 4. If I see a setup within this time-price window, I’ll be looking to take a trade. (It’s worth mentioning that the correction is unlikely to retrace to the usual 50% levels – at least that is what has happened in the past).

The initial stop will be determined nearer the time the setup occurs. What about a profit target? Figure 2 shows the range as 22.00 to 18.00. There is support at 30.00 but I expect it to give way. Crude Oil had formed a value zone after the low in 2009. It ought to have broken to the upside. The acceptance below the value are is bearish, suggesting that the 2009 low will give way.

The next support after 30.00 is the 22.00 to 18.00 area.

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FIGURE 1 Crude Oil  18-D Time-Price Zone

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FIGURE 2 Crude Oil Target

S&P 2015-02-09

Barrometrics Views: S&P 2015-02-09

We were spot on the Non-Farm and the S&P reaction to it.

Figure 1 shows the price action. After heading up following the number, the S&P sold off  after 12:30 PM EST. Where does the price action leave us?

I see three congestion zones forming in three timeframes:

  1. 13-week swing
  2. 18-day swing
  3.  5-day swing

Figure 2 is the 13-week congestion. Acceptance below  1994 would trigger an Upthrust Change in Trend pattern projecting a minimum target to the Primary Buy Zone, 1831 to 1820. If a change in trend does occur, my target for that is around 1400.

An upside breakout is also possible I have Ray Wave projections suggesting a top-out at 2259 to 2409.

Figure 3 shows an 18-day swing congestion. We have done the minimum retracement, though usually a move to 2078 would be more satisfying. In this case, there is a potential H&S, best for symmetry would also be a move to 2078; but stopping at these levels would not surprise.

Finally Figure 4 shows the 5-day swing congestion. Acceptance below 2054 would trigger a sell with a target at 1980 to 1992.

That’s the technical picture. But, for me, until I see clear signal that the QE myth has been dispelled (a technical sell trigger would now suffice), I’ll favour the long side. So, am looking for an upside breakout, and retest for a long entry. Acceptance below 2054 would be a warning that the long scenario is wrong. Acceptance below 1994 would confirm.

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Figure 1 S&P 30-min

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FIGURE 2 13-week

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FIGURE 3 18-day

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FIGURE 4 05-day

A Week Too Long

BarroMetrics Views: A Week Too Long

It has only been a week, but seems much longer. To those who sent emails enquiring about my health, a big ‘Thank You’. I am well.

The blog went into hibernation for a week because I had flown to Singapore to give a series of presentations, and to attend a series of business meetings. I also wanted to catch up with my friends. In this regard I was not successful – meeting up with too few. Amazing how the older I get, the less time I seem to have to do all I want.

I had fully intended to continue the blog, if only with ‘skeleton’ posts. You’ll be amazed on how many readers can be lost by an unannounced ‘rest’. Unfortunately, with trading, presentations and meetings, the blog suffered.

So, the second order of business is to apologise for not letting you know what was happening with me. (The first order was the ‘thank you’ to those who enquired after me).

Turning to the market, they are certainly in an interesting state:

  • Will the S&P trigger an Upthrust Change in Trend?
  • Will the 30-Year Bonds trigger a Normal Change in Trend?
  • The rally in Crude, an opportunity to sell? Or have we seen the bottom?
  • Gold – signs of a new bull market?

I’ll look at all these next week.

In the meantime, we have Non-Farm. The consensus is 230K with the range 215k to 275K. This has been one of the narrowest ranges we have seen in a long time.

Given Obama’s problems, I expect to see a number that is at least at the upper end of the range – say 250K.  That said, it is worrying that the range is so narrow – contrarian theory says we are likely to see an extreme number – upside or downside. Anyway, we’ll see at 8:30 EST tonight. (For new readers, I hold a theory that ‘critical BLS’ numbers come out in favour of the administration; unfavourable ones tend to come out in non-critical periods. So far, this idea has worked for me).

If the upper end does come in, we should see a rise the USD, rise in Gold, interest rate yields up (prices down).

The S&P? Not sure. ‘Good numbers’ ought to produce a rally, but ‘good numbers’ also place the June interest hike back on the table. Technically, I  am looking for a rally to challenge the 2087 to 2094 zone, with a minimum target being 2075. The rally off Monday’s 1982 low has shown volume and range suggesting continuation (both exhibited volume and range within mean to mean +1 std).

The attached chart was last updated on Feb 3.  Updating the chart:

  • Feb 4 saw a small range down night;
  • Feb 5 saw a move to 2064 on reduced range and volume when compared to Feb 3 but still with ‘normal’ bounds.

Let’s see what tonight brings.

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S&P 5-day Swing