Two-Faced Fed

Just a clip from JackAssSon Hole. They know it. They've known it all along. Peter Schiff has known it for decades. Milton Friedman knew it before then with his often quoted, "Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

Hit the full-screen icon [  ] in the lower right to enlarge the video. 

But more importantly, they've done everything they can to fuel it, including:

• Agreeing with the move to get the U.S. Dollar off of a Gold Standard (not fighting it).
• Tacitly agreeing with the move to end Glass-Stegal by not lobbying against it.
• Dropping interest rates to near zero at times.
• Poorly supervising the banks to allow pumping up of the housing market at times.
• Out-right buying of mortgage-backed-securities.
• Lying about 'not doing Q.E.' (Bernanke), and then doing it in spades.
• Out-right-buying Treasury Debt.
• Not lobbying for improved anti-trust enforcement to reduce business concentrations, or refusing to make loans to permit such.
• Allowing their banks to pay a non-market rate of interest for deposits (0.02% on savings!) when their banks get to make 6 - 10 % on a loan.
• Not lobbying against Corporate buy-backs using bank debt, etc., etc.

They know they are two-faced 'bad actors' that won't face up to the 'moral hazard' they have created. They will claim they are 'brave (spineless) public servants' just doing what congress wants. Then, they will literally 'beg' for bailouts of their banks, large financial institutions (think not only 2008-9, but Silicon Valley Bank recently), and big companies that get in trouble. 

The little guy? The little guy gets the shaft in the form of poorer conditions to do business in, higher interest rates for their small business loans, inflation eroding away the savings of those on a fixed income, threats to alter or eliminate social security because it 'can't be afforded'. Of course it can't be, not when you spend billions to bail out & reverse repo the banks instead. And excessive financial market volatility - both up and down.

It is two-faced. It is sickening. The rot in America - a condition I do not want to see - will continue until the situation is fixed, and I believe a very large part of this problem lies in the banking system and its supervisor, the Federal Reserve - and certainly with Congress.

Have an excellent start to the evening,

TraderJoe

Warsh-It Gold, Too!

The FOMC Chairman's remarks at the JackassSon Hole Conference last week were also not good for the price of the yellow metal, as this hourly chart of Gold futures, below, shows. The price was hit for more than $134, overall.

As you can see, the decline took the form of the expanding diagonal, with v > iii > i, and iv > ii, and wave iv overlapping wave i without going above the high of wave ii.

Why does this form keep happening? It is likely because the 'Smart Money' senses the risk and tries to protect themselves early on until the lower lows and lower highs become more convincing, and then the announcement finally breaks and those not in the know previously then sell on the news as best they can.

Again, such a pattern is also likely part of the modern market's survival mechanism - grinding and stalling small players into oblivion until a directional move finally is allowed or forced to occur. The market also spikes the bulls into thinking there will be a new high after the 9:30 am open, then pulls the proverbial rug out from them too. All-in-all it's a dangerous situation 1) unless one is counting and paying attention, and 2) unless one follows Ira's dictum to avoid major market news days like FOMC meetings, payroll reports, etc.

For our part, the speech did little good. Yes, it did raise long term rates a tad. And that might have a minor positive impact on inflation. Or maybe it won't. If businesses are saddled with higher cost long term debt, they may be forced to increase prices to make up the profit differences. Who can say?

No, the problem is not whether the CEO's and FED Chairs can have nice lunches and make speeches to each other at a resort in the peace and security of their enclave. The problem is, in short, whether the enormous level of wealth inequality will be allowed to persist.

For example - while the rich were noshing, above, certain hospitals in Florida announced United Health Care will no longer be accepted for payment of medical claims (a large percentage of Floridian's have Advantage Plans through United Health Care). And why not? Supposedly because UHC won't pay it's bills! Apparently, as the press reports UHC is in arrears $100 Million!

And the Warsh-It show goes on & on. Twiddle with interest rates here, hike them there. Blah, blah. Real lives are not as affected as much by it by it as are affected by lack of free, consistent universal health care. That is a major stupid problem in this country where we put insurance middle-men between the doctor and the patient. We (the government) are so ignorant to accept this idiocy. We let insurance salesmen get a large slice of every medical dollar. People don't get healed because of it. Some children don't get well fast-enough because of it. Some of us die because of it.

Meanwhile, over at the U.S. Treasury some guy named Scott Totally Absent (Totally is his middle name) is reportedly taking BILLIONS of dollars to buy-back some other BILLIONS of dollars. This is shear lunacy in a country where "Congress (can) regulate the currency and set the value thereof." Please! Government Officials, please, start to do something useful. Put the billions to work to improve health care delivery, or help house those without, or help provide decent inner city schools.

In the absence of true purposeful behavior - the country will continue to crumble, and the rich won't care a whit. Where is the law in the UHC case? If I owed $100 Million you can bet they'd throw my behind in the clinker. And where is the law, here regarding anti-trust, to stop the criminal agglomeration of wealth whether it be in health care, computing and technology, or retailing (i.e. Amazon). I have nothing against wealth. I only have something against 1) shameless wealth, i.e. collecting it for it's own sake, or 2) wealth that goes untaxed at the rates the rest of us pay, or 3) wealth that is obtained through disadvantaging others.

Yes, I just count waves. But I also wonder just who got hurt in Gold on Friday with these stupendous, idiotic and needless market movements because of some inane pronouncement. I know I didn't, but it was only because of counting waves, money management, and luck. 

To show the stupidity of what is going on, you only have to remember that Gold once traded for the longest time at $35 / per ounce. Friday's market movement alone was literally 4 times that historical level - in less than one day!  The lunacy continues. Why do we need such volatility in our markets? How does this help anyone? Please ask yourselves what we need to change before even more dire consequences occur.

This is the second post since Friday. Have an excellent rest of the weekend,

TraderJoe

Honorable Mention

Everyone already knows it. Prices today in the SPX, SPX and ES futures spiked on the Jackson Hole news conference by the honorable FED Chair Warsh. Then one could say they turned around on any number of concerning snippets. The initial result was the last remaining overhead price gaps in the cash market was closed as shown in the daily chart of the S&P500, below.

S&P500 Cash Index - Daily - Gap Closed

The situation now is that all the daily gaps are currently below the market. The market turned today very near the 70.7% upward retrace level which we have seen as often being a replacement for the 62.8% Fibonacci ratio in down markets. It is calculated as 1/1.414 (or 1 divided by the square root of two). In previous down markets the 62.8% retrace level had just become "too popular", and markets seldom turned there.

Today the ES futures did close below the 18-day SMA, turning the bias down. But, the market has a lot of work to do to make a lower daily low so that a down-trending parallel could be drawn. The slow stochastic indicator is in over-sold territory, so we need to have our antennas up for unusual formations if the market is to go lower.

We shall see. Have an excellent start to the evening and the weekend.

TraderJoe

Battle for the Line In the Sand

The ES daily swingline indicator currently has a lower low and now, today, a higher high bar against the 18-day moving average as in the chart below.

So, a flat or more extensive combination off of the low is still possible. The daily slow stochastic is still in over-sold territory. It feels like "summer quiet" and like someone sucked the energy out of the market.

Have an excellent start to the evening,

TraderJoe

Six Days in August

First, the long-term count consideration: regular readers of this blog have seen me repeatedly write that I have not "ruled out" the expanding diagonal interpretation of a Cycle Vth wave. That remains true: I have not ruled it out. What is new with this week in August is that such a count can now be specifically "ruled in". That does not mean it is the operative count. That means, specifically, that there is now evidence for it, as in the ES monthly chart below.

ES Futures - Monthly - Log Longer Wave Up

Notice that wave (3) on the exponential form of the chart is now "log longer" than wave (1) as shown by the Fibonacci ruler at high. This is the evidence that makes the expanding diagonal count now possible, according to the 'rules'. That is why we labeled the prior high with an alternate red (3) in Tuesday's post. Further, we don't 'know' a top is in. So, the expanding diagonal is a valid interpretation on the log scale chart. And, the question is whether the up waves better count as 'fives' or as 'threes'. According to degree labeling we get better counts with 'threes', but we can't argue with the logic that there was, indeed, a significant higher high, after wave (1) - which possibly makes it, wave one, a 'five'. We just couldn't find anything like a long-in-time fourth wave in that wave to count it as such. Readers can also verify that within red wave (3) that red wave A and red wave C are now about the same length, a truly interesting detail but not proof-positive.

Now for the local count of the six days. As shown in the S&P500 cash index below, there appears to be an impulse lower that kicks off with the third wave breaking the 'base channel' lower from the Kennedy Channeling Technique (KCT).

S&P500 Cash Index - 30 min - KCT

We showed this count before in the comments for a prior post, caught the bottom to within the half-hour, and price has since rebounded to the upper parallel channel line. Notice that wave ④ came back to the underside of the KCT which is an expectation of the technique. And wave ④ now offers also a retrace to an approximate 62% Fib level. Wave ③ occurs on a low of MACD, and wave ⑤ occurs on a divergence with MACD. So, this appears to be a textbook impulse wave. And that means its high is very important. So far, we think there will at least be a lower low after it. But, the caveat is it is just not that long, overall, and it did not overlap anything important downward. Maybe a subsequent wave will. It just hasn't yet.

But, readers should question, why did this hourly down wave follow the KCT, but the monthly up wave does not? The market is fractal, right? Shouldn't an upward impulse follow the KCT, too? But, clearly the upward monthly wave does not. This might be a clue why the upward wave is not an impulse but a diagonal. Its grinding character might be another clue.

Two channels are shown on the monthly chart, above. The smaller blue channel are for those who might expect a grinding wave upward. The lower, larger, gray channel is for the possibility that maybe the expanding diagonal does play out. It might allow red wave (4) to overlap with red wave (1).

And what about the contracting diagonal, for the indexes? Nothing has ruled that 'out' yet. It is still a perfectly valid count. It might have some more grinding to do, but we'll have to watch it's length. As a reminder, here is that count.

ES Futures - Monthly - Contracting Diagonal

While this is the currently operative count, there are some factors that tend to rule it out. They are the higher highs in the MACD, and price exceeding 78% in the current up wave. Then, there is always the pesky fact that the S&P500  did not downwardly overlap in 2025 like the Dow and the NQ did.

But the only thing that rules it out definitively is a price high above 8,508.50 as the fifth wave in a contracting diagonal can not exceed the third wave.

So, we have learned a lot in this month of August, and we will learn more if the prior all-time high should be exceeded. That is the spot to watch.

Have an excellent rest of the weekend,

TraderJoe

Retreat towards 18-SMA

The ES daily futures lost their embedded status and price has concomitantly retreated down towards the 18-day Simple Moving Average (SMA), as per the ES futures daily chart, below.

ES Futures - Daily - Loss of Embedded Status

So far, the swing-line indicator only has a higher high and a lower low. For a trend, one would want to see lower highs and lower lows below the 18-day SMA. So, a retrace upward certainly could be expected. For this reason, and the fact, that we can count five waves down on the SPY (cash) 15-min according to The Eight-Fold-Path Method, as in the comments for the prior post, one should place a wave-counting-stop (WCS) above the prior high.

Have an excellent start to the evening,

TJ

Current Count and Alt

Here's the current situation on the SPX500 (CFD) 4-hr chart. The black diagonal count reflects the fact that there is no good divergence yet with the NYSE A/D line.

The wave up from blue (b) to blue (c) or red 4 to red 5 is an impulse in either count. This is another good illustration of how The Principle of Equivalence plays out in practice: some impulse segments can be parts of two counts.

Three key factors in either count are: 1) the current down wave has traded below the Ⓐ wave of the prior triangle, at micro degree, 2) the current down wave is longer in price than wave ii of the prior impulse, as shown, 3) while a Flat for blue wave iv is still technically possible, it looks to be much lower odds at this point because it's up wave would be longer-in-time than the prior wave iii, the previous higher degree wave in the same direction, and this would seem to be a violation of degree definitions. So watch the high of this down wave.

Have an excellent rest of the day.

TraderJoe