Traders' Library Blog

Stocata S&P 500 Analysis: November 26, 2016.

A week ago I wrote: "Last week, I expected a pullback, but the market closed a bit higher and reached the resistance of the R2 pivot point of the month. This is also a Fibonacci target. I see a convergent move between the index and the SVESRSI indicator. Mostly this means that the last move is a correction and that the price will continue the previous move down. First targets are the R1 (2160) and PP pivot (2140) levels. Personally I am still avoiding longer term long positions. Read my comments on the weekly chart and monthly chart for my longer term view."

We have a new long term top with wave 3.14 in the weekly chart. In the daily chart we reach the upper side of the volatility channel. We should expect some retracement. However, we can expect a higher top after a short term correction in the daily chart. The next up target is around 2350. A correction now will probably move towards the 50 and 100 average and price support around 2155. On the other hand we are close to long term targets so, we must be prepared for a long term correction. Read my comments on the weekly chart and monthly chart  for my longer term view.

Sylvain Vervoort http://stocata.org/

Stocata S&P 500 Analysis: November 19, 2016.

A week ago I wrote: "As I wrote last week: "In normal circumstances, I would expect some retracement now. However, with the Presidential Elections on Tuesday, it is very unpredictable. We must expect a very volatile market." What would happen in normal circumstances came with some exaggerated retracement after a political historical fact, probably nobody was expecting. The same with the volatile market, it only lasted a few hours. I think next week there will be a pullback down, probably to the level of the PP pivot of the month. Looking more than one week ahead is my opinion not possible for the moment. Nothing is excluded for the near future, even a new long term top. I suggest to trade only short term for now. Read my comments on the weekly chart and monthly chart for my longer term view."

Last week, I expected a pullback, but the market closed a bit higher and reached the resistance of the R2 pivot point of the month. This is also a Fibonacci target. I see a convergent move between the index and the SVESRSI indicator. Mostly this means that the last move is a correction and that the price will continue the previous move down. First targets are the R1 (2160) and PP pivot (2140) levels. Personally I am still avoiding longer term long positions. Read my comments on the weekly chart and monthly chart for my longer term view.

Sylvain Vervoort   http://stocata.org/

Stocata S&P 500 Analysis: November 12, 2016.

A week ago I wrote: "Last week I mentioned: "From a purely technical analysis point of view, I rather expect the index to break the support moving further down. There is certainly much resistance for a move up." Moreover, yes, as expected, all days of the week were negative, closing the week at 2085. The index now reaches the S2 pivot support of the month, the low side of the volatility channel, the low side of a new down moving pitchfork and a Fibonacci target. In normal circumstances, I would expect some retracement now. However, with the Presidential Elections on Tuesday, it is very unpredictable. There is a good chance that the move down continues when we look at the monthly and weekly chart. I hope you are out of the market as I suggested already a few times, now simply watching what is going to happen. We must expect a very volatile market. Read my comments on the weekly chart and monthly chart for the longer term view."

As I wrote last week: "In normal circumstances, I would expect some retracement now. However, with the Presidential Elections on Tuesday, it is very unpredictable. We must expect a very volatile market." What would happen in normal circumstances came with some exaggerated retracement after a political historical fact, probably nobody was expecting. The same with the volatile market, it only lasted a few hours. I think next week there will be a pullback down, probably to the level of the PP pivot of the month. Looking more than one week ahead is my opinion not possible for the moment. Nothing is excluded for the near future, even a new long term top. I suggest to trade only short term for now. Read my comments on the weekly chart and monthly chart for my longer term view.

Sylvain Vervoort   http://stocata.org/

Why The Chinese Yuan Will Rally

Donald Trump is now president and has constantly harped on China and Mexico as the bogey man in international trade. He believes that they are preying on the American people and businesses.

In particular, he wants to brand the Chinese as currency manipulators and put on economic sanctions against them. This would likely take the form of much higher tariffs against Chinese goods coming into the US.

His basic complaint is that the Chinese have manipulated their currency lower in an effort to lower the price of Chinese goods. This would then make Chinese goods cheaper than American made goods and run the Americans out of business.

In fact, the Chinese unit rallied dramatically until the beginning of 2014. The central bank of China was given high praise for maintaining a strong currency in the 2008 crisis and for being a rock of stability.

But things changed in 2014 and the Chinese government began a policy of currency depreciation. Why?

We all know that the Chinese lie with their economic statistics. That is common knowledge.

But their growth rate dipped to multi-decade lows even according to their own calculations. We saw growth in the low 7% area.

At the same time, we saw the head of China, Xi Xiping start to centralize power in his own hands, a process that continues to this day. He is the first Chinese head to centralize power since Deng Xioaping freed the people from much of the autocratic power of the State.

China must create massive numbers of jobs each year to reduce social pressures. Tens of millions of people are moving from the country to the cities each year and jobs must be created for them to make sure they don’t riot and even topple the government.

At the same time, lower cost countries like Viet Nam started to eat away at the market share of Chinese goods in markets like clothes.

So Xi Xiping started to depreciate the currency for exactly the reason Trump stated. To lower the price of Chinese goods in the world market.

The Chinese unit dropped from 6.0 to the dollar all the way down to 6.8 to the dollar now. In fact, we are now at a record low level for the yuan.

But Trump’s election throws this calculation of the Chinese government into question. Continuing the depreciation of the yuan will definitely cause Trump’s government to brand the Chinese as currency manipulators and slap high tariffs and other penalties on them.

Of course, this will cause the Chinese to reciprocate against the US.

However, the Chinese economy needs the US economy far more than the US economy needs the Chinese economy.

So China will back off their currency depreciating and at least stabilize the yuan, perhaps even move it a little higher over the short run to stave off any Trump attack.

One problem is that the depreciation of the yuan is also reflective of massive outflows of capital from China. Hundreds of billions of dollars have been shipped out of China largely because of newly minted millionaires wanting to move they money overseas to protect it. This is a major cause of selling of the yuan. Xi Xiping allowed the yuan to depreciated to create lower prices for export goods but the yuan would have depreciated without the Chinese government wanting it lower.

The Chinese are already probably moving to support the yuan. For years, the Chinese were the biggest buyers of US treasuries, buying at least hundreds of billions of dollars each year and peaking at $1.278 trillion according to 2014 numbers released by the US Treasury.

However, it is commonly believed that they have sold over $200 billion of those treasuries in the last two years alone to get capital back to China. Of course, that means that they have to sell US dollars and buy Chinese yuan to accomplish this.

This shift from treasuries is likely the major supporting factor for the yuan.

The bottom line is that the yuan will likely rise in the coming year, starting right now. The Chinese government cannot afford to allow the US to brand them a currency manipulator and punish them. The cost to their economy would be too great.

So they will stamp down on outflows of money outside the country, such as the crackdown on gambling in Macau. They will continue to sell US treasuries because they need the money back in China. This will also cause upside pressure on US interest rates.

Look to buy the yuan starting right now.

Stocata S&P 500 Analysis: November 5, 2016.

A week ago I wrote: "Last week I mentioned: " The index finds now resistance from previous price levels, the 76.4% Fibonacci retrace, and the 100-day average. This resistance is probably enough to stop the up correction, and we may expect a further move down, in the first instance to the last low around 2115." The index came close to this level on Friday, but could not break the support at this level. The index may stay within the smaller trading range the coming week, waiting for the Presidential Elections. From a purely technical analysis point of view, I rather expect the index to break the support moving further down. There is certainly much resistance for a move up. Read my comments on the weekly chart and monthly chart for the longer term view."

Last week I mentioned: "From a purely technical analysis point of view, I rather expect the index to break the support moving further down. There is certainly much resistance for a move up." Moreover, yes, as expected, all days of the week were negative, closing the week at 2085. The index now reaches the S2 pivot support of the month, the low side of the volatility channel, the low side of a new down moving pitchfork and a Fibonacci target. In normal circumstances, I would expect some retracement now. However, with the Presidential Elections on Tuesday, it is very unpredictable. There is a good chance that the move down continues when we look at the monthly and weekly chart. I hope you are out of the market as I suggested already a few times, now simply watching what is going to happen. We must expect a very volatile market. Read my comments on the weekly chart and monthly chart for the longer term view.

Sylvain Vervoort   http://stocata.org/