Weekend Update


Anthony M. Cherniawski

November 16, 2012


-- The VIX closed back below its 40-week support at 17.36 but maintained its support at the 10-week M.A. at 16.22. On Wednesday it made an Intermediate Wave (2) low at 15.93. This is also the bottom of a Master Cycle, which means that VIX is ready for a massive surge.

SPX is beneath its weekly crash fractal.


-- SPX broke through its Broadening Wedge formation at 1375.00 and has retested it at the close on Friday. Although it has taken longer than expected (probably due to Options Expiration of Friday), the action is moving along as it should. On the weekly charts, this is where the crash begins, especially after meeting all the criteria for the crash in the daily chart. The declining fractals are becoming shorter, suggesting as pickup in speed is imminent. My cycles model suggests that the decline may be over sometime next week with a low most likely below the weekly Cycle bottom at 1139.30.

NDX may see some acceleration next week.


The NDX continues to lead the major indices by declining toward its mid-Cycle support and Broadening Wedge trigger at 2417.53. What is more, there are no further supports beneath mid-Cycle support until it has reached its Broadening Wedge average target below Cycle Bottom support at 1964.61.

(ZeroHedge) Equities closed the day-session near the highs of the day as OPEX shenanigans were evident everywhere. Early and ugly macro data was swept under the proverbial carpet (as it is transitory Sandy effects?), the ubiquitous European-close trend reversal started us higher, and then platitudes from D.C., and a late-day Fed-Head jawbone did the rest on a day when AAPL saw its largest volume in 8 months and pinned between 520 and 530 VWAPs. Risk assets did not follow the path of most exuberance that stocks did on the day (surprise).


The Euro back-tested its 40-week moving average.


-- This week the Euro back-tested its 40-week moving average and prepares for the largest decline yet. This is the area from which flash crashes begin. My Cycles Model strongly suggests that an “accident” may happen thiis weekend in the Eurozone.

(ZeroHedge) Young educated Greeks are facing an insurmountable wall of unemployment [Merkel Has A Dream]. With little chance of finding a job in their field, they’re competing for any kind of job. Wages have plummeted. Benefits have disappeared. The economy has shriveled by 19.4% from the third quarter of 2007. Promises that education would open doors to a better future have evaporated.

Yet, Parliament passed another austerity plan that the Troika, the bailout gang from the EU, the ECB, and the IMF, is now loudly praising. It includes a provision to cut public sector employees by 80,000 over the next few years, starting with 2,000 employees this year. And it has to please the Germans who will foot a big chunk of the bill.

The US Dollar gains strength.


-- USD continues higher above its 40-week moving average at 80.77 this week. The reason for this strength is that the USD had a Master Cycle low in mid-October. This gives the USD rally power for the next month, if it requires it. It has a waiting inverted Head & Shoulders neckline at 83.80. The potential right shoulder of the inverted Head & Shoulders appears finished. Because this pattern is not apparent in the daily charts, there is very little awareness of it and the ramifications of a powerful new trend in the Dollar.

Gold bounces between support and resistance.


-- Gold has reversed down and appears prepared to break through its 40-week moving average and the (crash) trigger point of its Orthodox Broadening Top at 1666.48. The next step in within the Orthodox Broadening Top pattern is that it goes into crash mode. The implications for gold are enormous. Investors are still looking up in gold, leaving them vulnerable to a panic, since there has been virtually no preparation for what may come. In addition, there is a complex Head & Shoulders neckline lying in wait at 1565.00, combined with a Cup with Handle formation with an even deeper target. Could this be the start of something big???

The treasury rally appears to be a Bull Trap.



-- USB managed to rally up to the lower trendline of its 23-month old Ending Diagonal formation, which may be a bearish head-fake just prior to a plunge back beneath it. The pattern appears completed and this rally may explained as a 68% retracement of the decline from the top. Ending Diagonals are usually completely retraced, suggesting a decline below its 31-year trendline and a target near Cycle Bottom support at 114.67. This forecasts a massive technical breakdown. A further decline may spark the first flash crash in bonds, which nobody is expecting. See below.


(ZeroHedge) Much is made of the 'apparent' bubble in Treasury bonds - a 30-year or so relatively consistent trend in government bonds (through thick and thin) and yet allocations remain minimal compared to our increasingly similar Japanese friends have experienced. It would seem to us, thanks to Bernanke's 'visible' hand that the real bubble is in spread product - as rates are so compressed, investors seemingly oblivious to the word 'risk' (unintended consequence) have flooded into ever-increasing yield/spread products - with high-yield bonds now dominated by these technical inflows.

Crude consolidated (again) this week.



-- Investors may infer that West Texas Intermediate Crude may be consolidating, preparing for a rally. This is especially the case if one looks at the Middle East situation. Not so with the technicals. WTIC is beneath all support and the news flow may only temporarily halt the decline beneath its massive Head & Shoulders neckline shown on this chart. More downside to come!

China stocks consolidate above a Bullish Wedge.



--The Shanghai index has made a very deep wave [B] of a retracement rally. The Bullish Wedge is acting as the base for this retracement. It has fallen beneath its 10-week moving average at 2086.48. I am neutral unti it rises above that level. Once accomplished, it may be ready for a very strong Primary Wave [C], possibly to the top of the Cyclical band.


The India Nifty declines beneath 10-week support/resistance.




The India Nifty has now declined beneath its 10-week moving average at 5670.17, as it begins its third wave decline. The extended Cycle Wave I adds another bearish element to CNXN. A Cup eith Handle formation is now evident, which supports and enhances the validity of the Head & Shoulders pattern.

The Bank Index broke the 40-week support.



-- BKX has crossed beneath its 40-week moving average at 47.21 and may be headed for mid-Cycle support at 46.24 and its Broadening Wedge trip-line very quickly. This is where the panic begins. The extended correction now puts an even more bearish Cup with Handle in play. The uptrend may be over ths week in BKX.


(ZeroHedge) Everything that has happened since 2007, every Central Bank move, ever major political decision regarding the big banks, every trend, have all been focused solely on one issue.


That issue is collateral.

(ZeroHedge) Given the deterioration left, right, and center in Europe's core and peripheral economies, some question the sustained 'strength' of EURUSD. An under-the-table peg around 1.27 is the conspiracy chatter but we fall back to a tried-and-true recipe for comprehending what the market is thinking - the central banks are in charge and the EURUSD exchange rate merely reflects (as a main trend) the relationship between those two balance sheets (as monetary policy escalates downwards and they battle each other to 'defend' their own currencies' demise).


We end on that note.




Tony Anthony M. Cherniawski


The Practical Investor,

LLC P.O. Box 129, Holt, MI 48842

Office: (517) 699.1554
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Disclaimer: Nothing in this email should be construed as a personal recommendation to buy, hold or sell short any security. The Practical Investor, LLC (TPI) may provide a status report of certain indexes or their proxies using a proprietary model. At no time shall a reader be justified in inferring that personal investment advice is intended. Investing carries certain risks of losses and leveraged products and futures may be especially volatile. Information provided by TPI is expressed in good faith, but is not guaranteed. A perfect market service does not exist. Long-term success in the market demands recognition that error and uncertainty are a part of any effort to assess the probable outcome of any given investment. Please consult your financial advisor to explain all risks before making any investment decision. It is not possible to invest in any index.

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