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ABX SubPrime Indexes Back In Crash Mode
12 of 20 indexes posted new lows on Friday. There is still one AAA rated index still in the 90c range. When that falls into the 80c range ALL MORTGAGE INVESTORS will have to revalue their portfolios DOWN by at least 10% whether they are marked to market, markets to model or the "undetermined" pricing method allowed by FASB rule 159 category Level 3.
Since marked to market and marked to model would show a portfolio down by more than 50%, it seams there is insufficient capital at banks to cover these losses. Time to make a run on the banks, 1930's style.
The equity markets will have to follow the bond markets lower as the "low risk" end of the investment risk spectrum is the foundation for the "high end" of the risk spectrum.
Futures taking a POUNDING
e-mini SPX -14.25
e-mini DJIA -150
e-mini NDX -66.50
This is a hard reversal from todays close. In the case of NDX, it indicates a gap down. On the Dow, the ewave the futures create give a very high probability the rally off todays lows was only a zigzag correction.
7 0f 20 New 52 Week ABX Lows
A huge shift in the ABX mortgage indexes took place today. 6 of the 7 new lows cam from the BEST rated indexes. only 1 came from the lowest rating. Buyers and sellers have given up on the lowest ratings, and are now selling the best rated indexes at whatever price they can get. This is liquidation.
While I'll keep an eye on the entire list of 20 indexes, my focus is now on the best rated indexes. The best rated index is at 94.78 and will eventually fall below 90. When no indexes are in the 90-100 range, it will be pointless to institute the MLEC to provide liquidity to investment grade mortgage debt. Banks will have to mark to market, further fueling an equity crash.
Nikkei Bounce = double zigzag.
Yesterday I called the start of zigzag in the Nikkei, with a strong possibility of a double zigzag or something taking more time to correct. The double zigzag is the favored count.
This evening's rally looks like wave c of C is starting. The target remains 16400 and tonight. Wave 3 of 3 will be fairly strong, dropping the index by more than 1100 points if it doesn't extend too much.
There is still an outside chance the double zigzag is wave a of a flat.
http://finance.yahoo.com/q/bc?t=5d&l=on&z=m&q=l&p=&a=&c=&s=%5En225
DowDiva: Retailers WMT
WMT has support at $42. Technically it made an e-wave top in November '04.
Wave 1 Nov '04 to Sept '05
Wave 2 Sept '05 to June '07
Wave 1 of 3 June '07 to Aug '07
Wave 2 of 3 Aug '07 to early Oct '07
Wave 3 of 3 is underway and should prove to be a wonderful short play.
Fundamentally consumers are tapped out, and the declining dollar makes it less profitable to import.
ABX Takes Another Breather
No new 52 weak lows in the mortgage indexes today. It was interesting to notice ABX-HE-AAA 06-1 made a relative new low in this recent wave of selling, but has not broken the July lows.
Could banks be selling prime motgage bonds into this rally because they desperately need the cash the junk bonds won't provide? I've noticed even though yields on 10 yr treasuries have gone down, banks are offering 6 - 12 month certificates of deposit with higher yields. That makes for one inverted yield curve.
NIKKEI Bounce Near Fib 33% Ratio
This relief rally (zigzag) looks complete, but I think more time (another day) is needed to correct before the next big down wave will start. The price may retrace as much as 50%, or morph into a flat.
http://finance.yahoo.com/q/bc?s=%5EN225&t=5d&l=on&z=l&q=l&c=
Who Insures The Bond Insurance Companies?
We're about to find out.
YHOO Triangle e-wave
The past 4 days YHOO has traced out a textbook triangle e-wave. The story with YHOO is the Alibaba IPO starts trading Next week, Monday I think. YHOO is part owner in the company taking Alibaba public. The wave signals the market is getting ready to "sell the news". It remains to be seen how high YHOO pops. I'm estimating at least 10% since the triangle corrected by that amount.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=yhoo&time=&freq=
ABX Mortgage Index Making New Lows
On Wednesday I think only 1 index made a new low as the FED induced a bouce. Today's momentum to the downside resumed with 5 new 52 week lows. Last week there was a calm before ther storm. Maybe this week will play out similarly with maybe ALL 20 indexes making new lows next week.
The ABX indexes are increasingly getting main stream media attention. It signals the beginning of a Wave 3 or Wave C, the strongest part of a move.
18 of the 20 ABX Indexes made new lows
That's a whopping 90%!!!
Even the the two indexes that did not make new lows this sell off have dropped 10% AND have momentum to make new lows before finding support. The proposed super-SIV, MLEC won't be able to buy the best mortgages because they are falling too fast and will not be investment grade by the time MLEC becomes operational.
Crash alert for the equity markets as the subprime indexes collapse.
AGAIN -17 of 20 ABX Mortgage Lows
If there were any question to the significance of Friday's 17 of 20 new 52 week lows, today's confirms it with another day of 17 new 52 week lows. This follow-through signals the bottom has not yet arrived.
An article today features homeowners paying mortgages with credit cards. It won't be long now until the market turns lower when fewer shoppers are able to charge their holiday purchases. TA and FA will finally synchronize.
ABX Mortgage Indexes 17 of 20 New Lows
90-100c = 1 index
80-90c = 4 indexes
70-80c = 1 index
60-70c = 1 index
50-60c = 2 indexes
40-50c = 2 indexes
30-40c = 2 indexes
20-30c = 5 indexes
10-20c = 2 indexes
Half of these are worth less than half of their face value.
This isn't capitulation. It's a MELTDOWN!!!
Here Are the Ending Diagonals:
It looks like they all started on Wednesday. In the INDU and SPX wave 4 started and ended Friday morning. It was a triangle that overlapped wave 1, and signals only one more wave UP of the same degree is left (wave 5 ). wave 4 in the NDX is a zigzag.
The overnight futures are UP and are still right around the upper edge of the ED. Monday's opening should complete wave 5c of the ending diagonal for all markets mentioned.
INDU
http://www.marketwatch.com/tools/quotes/intchart.asp?symb=indu&time=3&freq=7&comp=&compidx=aaaaa%7E0&compind=&uf=0&ma=&maval=&lf=1&lf2=&lf3=&type=2&size=1&txtstyle=&style=&submitted=true&intflavor=basic&origurl=%2Ftools%2Fquotes%2Fintchart.asp
SPX
http://www.marketwatch.com/tools/quotes/intchart.asp?symb=SPX&time=3&freq=7&comp=&compidx=aaaaa%7E0&compind=&uf=0&ma=&maval=&lf=1&lf2=&lf3=&type=2&size=1&txtstyle=&style=&submitted=true&intflavor=basic&origurl=%2Ftools%2Fquotes%2Fintchart.asp
NDX
http://www.marketwatch.com/tools/quotes/intchart.asp?symb=ndx&time=3&freq=7&comp=&compidx=&compind=&uf=&ma=&maval=&lf=1&lf2=&lf3=&type=2&size=1&txtstyle=&style=&submitted=true&intflavor=basic&origurl=%2Ftools%2Fquotes%2Fintchart.asp
RUT
The Russell 2000 ending diagonal count is open for debate. Friday's opening did not break Thursday's high., though it may have in pre-market trading.
http://www.marketwatch.com/tools/quotes/intchart.asp?symb=rut&time=3&freq=7&comp=&compidx=aaaaa%7E0&compind=&uf=0&ma=&maval=&lf=1&lf2=&lf3=&type=2&size=1&txtstyle=&style=&submitted=true&intflavor=basic&origurl=%2Ftools%2Fquotes%2Fintchart.asp
INDU, SPX, RUT, NDX ewave update
NDX: Yesterday into today looks like a Wave 4 triangle. The futures are looking higher, but still bound by the upper edge. Look for a pop to complete triangle wave d and then drop to complete triangle wave e. Sometime in the early afternoon a swift rally (Wave 5 of Aug '07 rally), maybe to a new 52 week high will complete. This sets up much of the next two weeks as a strong selloff, either bull consolidation or new bear market.
INDU, SPX, and RUT continue a complex sideways bear market correction. The choppiness may hide a triangle or ending diagonal. Since these markets have not challenged their 52 week highs as the NDX did, they are not confirming the new 52 week highs in the NDX. I think these indexes are in a new bear market
Bottom line is a market crash about to accelerate. The mortgage indexes went from 2 to 5 then to 15 new lows in 3 consecutive days. There was hardly a consolidation for the selloff where 12 of 20 indexes were typically making new lows. C, CFC, MER, and JMP continue to get hammered. A vote of no confidence in banking, mortgagge, and finance companies is a vote of no confidence in the overall financial system. Once they go, the rest will fall very quickly.
15 of 20 ABX mortgage indexes make new lows.
This time at least one AAA rated index was in the group. This tells me the crash is getting really close.
Peg- Ewaves
I had several confusing e-waves counts. More time has painted a better picture.
NDX - Monday's low was a smaller degree wave 4 (zigzag or double zigzag). Today's low was a larger degree wave 4. Tomorrow should complete larger degree wave 5, the August '07 rally, and maybe even larger degrees.
INDU, SPX, and RUT have topped out and are starting several degrees of waves 1-2.
Transports: This index has had the weakest rally off the Aug'07 lows. My favored count is an ending diagonal in wave 5b or wave 5c.
TNX update: yields are falling as investors seek shelter. Wave 1 of WAVE 5 ran June - Sept '07.
Wave 3 of WAVE 5 started around the 15th of October
Wave 3 of 3 began yesterday. Watch for yields to plunge into the low 3's. That's when China will start dumping their US treasuries.
Shanghai Market Bounce at 50%
Structurally the SSEC has made 5 waves down from all time highs. Monday thru Wednesday of this week the SSEC traced out a Wave 2 flat. wave c is definitely motive and needs only 30 more points to reach a fibonacci 50% retracement.
http://finance.yahoo.com/q/bc?s=000001.SS&t=5d&l=on&z=l&q=l&c=
Flats appear befor or after the longest wave of the 5. Wave 3 should be exceptionally strong as this is part of a post exponential rally.
abx calms down with 2 new lows.
Only 4 of the 20 ABX indexes remain 90c on the $.
Pegwatcher, Dollar-Yen Unwinding
That unwinding coupled with a real estate crash, debt liquidity seizure, oil price rocket = a huge downside for equities.
ABX Mortgage Indexes Falling Faster
Again 12 of 20 indexes made new lows. 6 ( nearly 33%) are priced 20 to 30 cents on the dollar. Even the highest rated indexes are gaining downward momentum despite pledges to provide liquidity.
12 of 20 ABX Mortgage Indexes Make New Lows
And many of these declines were sharp.
3 of the A rated indexes made new lows. The fear of financial cancer is spreading through the risk spectrum very quickly.
Willie - Alternate Wave Count.
Since the drop on Oct 11 was very fast, it may be tough to count the proposed Wave A as impulsive. Suppose instead the Oct 11 selloff marked the beginning of a Wave 4 triangle, then the rally out of today's lows would be Wave 5. and tomorrow should continue the rally to some point just above the high on Oct 11.
Support for the both the NDX zigzag and triangle is inconsistent when considering other inexes.
THe SPX Wave 4 triangle count is a clearer triangle in the SPX during the same time.
The Dow transportation could be a series of 1-2, or a triangle. I prefer the triangle since the it fits the larger picture of an ending diagonal out of the August lows.
The Dow industrials at first glance shows a triangle, but wave 3 is the smallest, a rule violation. Another wave count must be made. How about a zigzag with wave A a leading diagonal? It's a very rare pattern though. The Industrials are showing a lot of weakness.
The RUT shows 3 impulsive waves and 3 corrective waves, signalling a strong selloff tomorrow, almost a crash situation.
Again, 10 of 20 ABX Indexes Make New Lows
There was a "flight to quality" as the yield on the 10 yr treasury fell, yet the yield on the 30 yr treasury rose. Both look to be consolidating before yields resume their longer term rise.
Stkboy1 - Agree with the Triangle
It's a textbook example.
That means there is only one more advancing wave of the same degree before a larger degree reversal takes place.
10 of 20 ABX Mortgage Indexes Set New Lows
And two of those indexes are rated A of better. This is a pretty bad situation that will lead to further credit restrictions.
Hang Seng Index E-waves
The rally off the October lows looks like an ending diagonal.
The rally off the August '07 lows (50% gain) looks like a complete 5 waves as well. The tide should turn any day now.
http://stockcharts.com/h-sc/ui?s=$hsi&p=D&yr=0&mn=6&dy=0&id=p75635173805
ABX Indexes 7 of 20 New Lows
7 of the 20 ABX mortgage indexes made new lows Friday. Momentum to the downside is gaining in the subprime mortgage markets.
The yield in the 10 and 30 year US Treasuries have been consolidating the last 2-3 days and should start moving up. There appears to be several wave 1-2 combinations at 3 degrees of trend, so a move in the 10 yr yield above the 4.90% level is likely this week.
The tech analysis is in sync with the funnymentals as G7 contries are putting pressure on the US Fed Reserve to strengthen the dollar. The world is counting on a strong dollar because US consumerism is believed to keep the world employed. It would be a political nightmare for manufacturing countries to experience layoffs due to a slow down in the US economy.
Willie -Wave Count
Your larger wave count looks good to me. I would argueon the 30 minute chart blue wave 1 ended around 2050 and blue wave 2 was a flat, supported by a blue wave 4 zigzag. A generalization is waves 2 and 4 alternate between flats and zigzags, but it has never been seen both of them being the same wave structure.
Bonds Sell Off, Yields Climb
There are two valid short term counts for the 10 yr Treasury yield.
Bullinsh then Bearish: Wave c of 2 zigzag correction off the September lows. Fibonacci retracements of 50% and 62% would put yields around 4.80% and 4.92%, respectively. Yields then drop below 4% in Wave 3.
Bullish: waves 1 and 2 off the September lows are the start of yields climbing much higher. This wave 3 should take the yield over 5%.
3 of the 20 ABX indexes made new 52 week lows today. In the past 10 days, there has been only 1 day where a new low was not made. On one day 7 new lows were made. These conditions are neither technically nor fundamentally sound.
http://stockcharts.com/h-sc/ui?s=$tnx&p=D&yr=0&mn=6&dy=0&id=p75635173805
7 new lows in the ABX Mortgage Indexes
7 out of 20 (35%) ABX morgage indexes made new lows today. The past 2 weeks has been dominated by a recurrence and increase in new lows. 1 o 3 morgage funds making new lows says the problem is getting worse, not better. Look out below as momentum has built up yo the downside.
Peg - Shanghai Market
Stockcharts.com is showing no trading data for the Shanghai market this week either.
Jerry O- RUT
You made a great call in early September. I may still the call.
RUT is not confirming the Industrials, SPX, or NDX. Neither are the transports. In fact, the RUT and transports looks like possible truncating, ending diagonals. The FTSE gave me the idea of the possible truncating ending diagonal count early last week.
Central banks distorted wave counts with helicopters of $$$. My earlier comment about the RUT being choppy out of the Aug '07 low also applies to the SPX. The distortion of the SPX on Sept 18 prevented the overlap of Ending diagonal wave 4 on Sept 24. The advances look more like zigzags than motive 5 waves. The NDX was very distorted so that no overlap happened.
Stoshastics are overbought.
It's crash time.
High Yield Fund
I recall seeing on the Federal Reserve website decades of records on AAA and BBB bond yields. If you plot the difference between their yields and treasuries, you will find appetite for risk when the difference is minimal, and flight to quality as the difference increases. It's been a few year since I charted this data. I'll add it to my list of things to do since I'm very curious how things have changed.
The chart at the link you tells a lot. The NAV for the fund since inception has dropped a whopping 75% over 10 years. It consolidated after the DotCom bubble burst despite record rate easing and hedge fund appetite for high risk debt. The fund never challenged the original NAV near $16. Now with a general credit crunch, debt will get a lower price when it needs to be sold for the fund to remain liquid.
Shanghai Market Update.
Over the past two weeks the SSEC has had a choppy advance (maybe a small degree wave 5 ending diagonal) and declined below the 20 day moving average. The lower trend channel from the July '07 lows is about to get breached. The relative strength index (RSI) recently made a lower top when the market made a higher one. This is a divergence, and a warning of a possible trend reversal. The same comments apply to the MACD. The stochastice have been overbought for quite some time and are about to give a sell signal. The bollinger bands have contracted indicating a quick move in one direction is about to take place.
http://stockcharts.com/h-sc/ui?s=$ssec&p=D&yr=0&mn=6&dy=0&id=p75635173805
ABX - Link
Sorry this is not an index like the SPX.
http://www.markit.com/information/products/abx.html
ABX Value
Mortgages debt was supposed to be a very safe investment until the housing bubble inflated. Historically it was based on fundamentals, more screening of the borrower was performed, an much less on speculation as in equities. This time is actually different. The speculative portion of the deal dominates fundamentals. The bubble popping is the price catching up with the fundaments. The subprime mortgage debt is signaling a severe downturn. The initial impact can already be seen in homebuilders, then suppliers, financial institutes, and now finally retail. The larger markets are still lagging due to the extreme complacency, denial, and a little FED pixie dust. Eventually equities will catch up with the subprime fundamentals. Funds will be forced to liquidate stocks or anything that can be sold to meet margin calls or redemptions on their illiquid subprime investments. I just don't know the exact time the equity markets will crash.
The sudden drop in the ABX indexes is screaming, "A catastrophe worse that the bank failures in the 1930's is about to happen." Debt is the foundation of the economy. When the credit stops flowing, the economy slows down. When you invest with the trend, you could still lose if you can't withdraw funds from the broker or bank that is insolvent.
ABX-HE Index Usefulness.
There are sufficient players in these indexes to generate Elliott wave patterns. There are a range of ratings that represent risk. When two indexes of different ratings are compared, trends in relative risk are easier to see. Divergences are easier to see. Debt is the foundation of the banking system. When the debt market crashes, equities will have to. These trend are so bad right now that all is needed is a quick glance at the chart. Despte all that money Bernanke threw at the problem, it has not gone away, only gotten worse.
GOOG in Long Term Ending Diagonal
From Jan to Aug '06 GOOG traced out a WAVE 4 triangle. WAVE 5 looks like a an ending diagonal withits 3 overlapping advances. The price is at the upper trend channel and should start to make its turn lower any day now. One of the areas of support is the $350 level as post-ending diagonal behavior plunges to the starting point of the ending diagonal.
http://stockcharts.com/h-sc/ui?s=GOOG&p=D&yr=1&mn=10&dy=0&id=p10562297414
3rd Day of 5 New Lows on ABX Index.
The worst index is priced less at 30c on the $. The other indexes have made their turns lower after a month of consolidation.
I could see a penny stock dropping 70% real quickly, but real estate backed debt? A run on the Countrywide Bank, and one on North Rock in London. Barclay's bank is actually reducing credit card limits on customers who have been marginal in the past, and clamping down on those maxxed out. Honest mortgage borrowers received foreclosure notices when American Home mortgage wouldn't give Freddie or Fannie the debt documents so the payments F&F are processing go to the correct escrow accounts / municipalities for property tax. These are the sign of a credit/ confidence meltdown that just isn't going away. If the equities market takes off as several on the board believe, then it will be followed by a huge crash. That's why I'm short the stock market.