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Wednesday, 19 March 2014

There Is No Coin

In the midst of this strange day I saw something very funny on twitter, which was an analyst saying that 'Bitcoin is a virtual currency without any value anchor so ....' As opposed to what I wonder? In a world where vast quantities of new money are being created, and where respected economists are starting to mention seriously the possibility that the Fed could or should buy some or all of the US National Debt back with an even larger flood of newly created digital dollars, one can't help wondering where real currency with a solid value anchor might exist. I am no Bitcoin fan but it's hard in the world we see around us to deny the advantages of a having access to a currency that cannot be debased by central bankers.

Back on the markets today, at the interface where fantasy fiat currency meets at least some real assets, there was a shockwave as Yellen helped participants out with some basic math by telling them that if the Fed continues to taper at the current rate then QE3 will be ending in the Fall. Regular readers of mine may recall me mentioning that some months ago. More damage was done when she suggested that interest rates might be raised from zero to slightly above zero sometime next year. I gave two support levels on SPX in my post this morning and the first at the SPX 50 hour MA was tested to within 0.3 points on the move after the Fed announcement, and the second at rising channel support from the 1737 low was tested perfectly on the plunge after Yellen's explanatory comments. Rising channel support on Dow was tested at the same time.

So what does this mean? Well firstly I'm giving some thought to adding my post this morning to the Hall of Fame section on my blog, but there were also some technical implications that I'd like to look at, and as the rubber may be meeting the road in earnest on either of my bull or bear scenarios here tomorrow, I'm publishing this post tonight rather than as usual tomorrow morning.

On the bull scenario on SPX (and Dow) rising channel support was tested again today and held, leaving the trendline stronger and as long as that trendline continues to hold then the uptrend is ongoing and we should see a retest of the highs in the near future. On this scenario we would most likely see a decent rally tomorrow. SPX 60min chart - bull view:
On Dow the setup is very similar, down to another perfect test of rising channel support there. Dow 60min chart - bull view:
So what if rising channel support doesn't keep holding? Well the touch today was a two edged sword. It strengthens the trendline, but it also makes a trendline break more likely, and if we see that rising channel break, it will now look more serious and be more likely to be followed through to the downside. That matters because in the absence of the channel I have a largely completed upsloping H&S forming on SPX, and while the current 1839 low failed to hit any fib area of significance, this H&S would almost exactly target the 61.8% fib retracement at 1794 SPX. SPX 60min chart - bear view:
How would that look on Dow? Pretty similar but with minor differences. The H&S would be downsloping, and while the fib target would be in an acceptable 76.4% fib retrace area, Dow already made a perfectly decent 38.2% fib retrace at the current low. The H&S is decent quality though and if the rising channel is broken then it may well play out. Dow 60min chart - bear view:
So which way will it play tomorrow? Well as long as the rising channels hold the bull scenario is more attractive. If they break down then these bear scenarios will become my primary scenarios and on a break below the H&S necklines then they should play out to target. That wouldn't break the SPX main uptrend, as I have primary channel support in the 1775 area, though it would bring SPX dangerously close to testing that.

I may post another couple of charts before the open tomorrow but I've stayed up late to post this, so very possibly not.

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