Thursday, February 13, 2014

The S&P 500 is backing off near the projected levels and the bull/bear technical evaluation can begin. Janet Yellen will complete her testimony with the Senate today and unlike the Q&A from the House, this should be a non-event. 

There is a lot of to dwell on in the global markets and another is the shadow banking system in China. Currency problems from Argentina, South Africa, or Turkey are important but they are bit players in the global trade world. China is the main elephant and casualties in their shadow banking system are still lurking. 

Jilin Trust’s Wealth Management Product (WMP) is under stress from loans to coal miner, Liansheng Group, which is going through a desperate restructuring that is due February 19th. Recall a similar situation last month when China Credit Trust packaged a 3 billion yuan WMP that was on the verge of default on January 31st. Somehow, as global markets were selling off, a “mystery” investor stepped in and saved the WMP. Probably does not take much to deduce that some branch of the government coughed up the cash to stem potential instability. 

This current WMP from Jilin Trust is worth 100 million yuan…could be too small to save. What is even dangerous, as some WMPs run into trouble with payments to investors, more WMPs are underwritten to cover the existing troubled WMP – the basic Ponzi scheme. At any rate, these WMPs are sold like savings accounts to average citizens, therefore systemic risk is real for a domino effect of defaults – a situation the US knows all too well. The current daily Shanghai exchange counts are shown below.Image



Flip to neutral if SPX closes below 1819.40 today.

ImageImageCoupled with the 4 hour TD Sell Setup @9, the 15 and 30 minute SPX charts provided confluence during yesterday’s session with a pair of TD Sell Countdowns @13. While the SPX is conducting a consolidation that is conducive to the bullish side, the outlook will cut to neutral with an end-of-day bearish price flip at 1819.40. In the event the bears take control, a close below 1797.02 (or conservatively 1795.12), would make a good bear trigger. 



Back to bearish with a close below 1797.02.

ImageImageWhen there are competing counts, it is sensible to evaluate the first one that produces a 9 or 13 and see if a case can be made for a reversal. Since the market cooperated along with the 4 hour TD Sell Setup @9 yesterday, it is now clearer there can be some coordination between the TD Trend Factor/TD Propulsion Threshold Exhaustion levels around SPX 1834.50 and TD Sell Countdown, which is two counts away from a 13. Adding to the confluence is the Nasdaq (COMPQ) chart, which is very close to recording a qualified TD Sell Countdown @13. Although theoretically a 13 should have been recorded by now, TD Sell Countdown is not qualified until the COMPQ meets the close of bar 8 at 4225.76. 



Neutral if SPX weekly closes above 1842.27, most recent high close (updated January 27th.)



Flip to neutral if SPX (monthly) closes below 1756.54 (updated February 3rd.)



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