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Via Dana Lyons' Tumblr,

The correction in the equity markets has brought the S&P 500 down close to a confluence of key technical levels.

People ask us all the time what we view as the important “levels” in the stock market, e.g., “what is our target level for the Dow?” or “what level will put an end to the correction?”. To be honest, while we do have our areas on the various charts that we view as significant, we are less focused on price levels than we are on the behavior of various market indicators and investors. Levels can be helpful, but sometimes prices overshoot what they “should” and sometimes they don’t quite make it “there”. That’s why we rely on a set of indicators based on market internals, momentum, investor positioning, etc. to help guide our investment posture, i.e., aggressive, defensive, etc.

That said, as I mentioned, we do view certain levels on a chart as significant if prices do happen to reach, or breach, them. And since A) people are most interested in the S&P 500 and B) that index is approaching some potentially key levels, we thought we would present it as our Chart Of The Day.

One thing of note that we have mentioned several times before is that, of all the securities and indices, etc. that one wants to chart technically, the S&P 500 is one of the most unreliable. We have found that typically, the degree of adherence to technical levels is inversely correlated to the number of participants trading it. That is, the more people attempting to technically trade a price series, the less apt it is to conform to traditional technical analysis.

This is not a scientific conclusion but rather an observation of ours. But it does make sense because A) the more competition there is, the more difficult it will be to win, and B) the more participants there are watching the same thing, the more likely it will be that HFT’s, computers or large institutions will be “gaming” that “thing”. And perhaps no instrument has more eyes on it than the S&P 500. That means it is a relatively difficult thing to successfully trade based on traditional technical analysis. Yet, for some reason, everybody feels the need to be involved with it.

With all that said, here are some levels of potential importance, in our view, that are fast approaching based on the S&P 500′s current selloff. Again, the levels are not as precisely aligned as they are on some indices (e.g., the Value Line Geometric Composite), because there are too many eyeballs on it. However, the following 5 significant levels are generally within the same vicinity between 1748-1790, making it a key confluence of potential support.

 

 

? 23.6% Fibonacci Retracement of 2009-2015 Rally ~1790

? 38.2% Fibonacci Retracement of 2011-2015 Rally ~ 1748

? 61.8% Fibonacci Retracement of 2013 Breakout-2015 Rally ~1780

? 1000-Day Moving Average ~1774

? Post-2009 Up Trendline ~1760

 

You may be thinking that, if the S&P 500 reaches these levels, it will mean that the January 20 low will have been breached. How could the index be expected to hold any nearby levels then? Remember that there are tons of folks watching for a break of that January low as a bearish signal. While we are not saying a breach of the low would be a positive, remember that there is a ton of money watching the “watchers” with the goal of manipulating their traditional expectations. That may be less than clear so just remember, if you’re trading the S&P 500 or any other heavily traded instrument, do not be surprised by the unexpected.

Will these levels pan out as support? Will they even be reached? We have no idea. That’s why we focus on other metrics to inform our investment decisions. However, we would expect this confluence of levels to at least offer an attempt at support.

*  *  *

More from Dana Lyons, JLFMI and My401kPro.

via Zero Hedge http://ift.tt/1TWNxtx Tyler Durden

There was much at stake in today’s retail sales report, because had the Census reported another miss in the headline, ex auto and control group data, it would have made the Fed’s job of maintain the illusion of a recovery into a rate hike cycle virtually impossible. Luckily for Yellen, the numbers came out and they were were beats across the board.

• Retail sales rose to $449.904b in January, up from $449.1b in December
• Retail sales rose 0.2%, higher than the estimated 0.1% rise
• Retail sales less autos rose 0.1% in Jan., also better than the 0.0% estimate
• Retail sales ex-auto dealers, building materials and gasoline stations rose 0.4% in Jan., better than the 0.3% estimate

Finally, the ‘control group’ rose 0.6% in Jan., well above the 0.3% estimate, and most notably the highest increase since May. Adding to the optimistic results was that every data point was revised higher.

 

Several charts breaking down the retail sales data:

The breakdown by segment showed an increase in virtually all categories except gasoline stations (due to continued deflation in gas prices), a 0.5% drop in home furniture sales, a -2.1% decline in sporting goods sales, and a -0.5% decline in food service and drinking places.

Some more details from Reuters:

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, moderated in the fourth quarter. That, together with weak export growth because of a strong dollar, efforts by businesses to sell inventory and cuts in capital goods spending by energy firms, restrained GDP growth to a 0.7 percent annual pace. Consumer spending is being supported by a strengthening labor market, which is starting to lift wages.

 

Still, households remain cautious about boosting spending, against the backdrop of an uncertain global economic outlook and a sustained decline in oil prices, which have sparked a broad stock market sell-off.

 

Overall retail sales rose 0.2 percent in January as cheaper gasoline undercut receipts at service stations and harsh winter weather weighed on spending at restaurants and bars. Retail sales increased by an upwardly revised 0.2 percent in December, up from the previously reported 0.1 percent gain.

 

Sales at service stations fell 3.1 percent after decreasing 0.5 percent in December. Auto sales advanced 0.6 percent after rising 0.5 percent in December.

 

Receipts at clothing stores gained 0.2 percent. Sales at online retailers jumped 1.6 percent, but receipts at sporting goods and hobby stores fell 2.1 percent. Sales at electronics and appliance outlets edged up 0.1 percent.

So while the question several days ago was whether bad news is good news for stocks (it wasn’t), today the question flips to whether good news for the economy will be good news for stocks, with the risk of course being that a strong economic data point validates the Fed’s rate hike trajectory and reduces the market’s hopes of a Fed “relent.”

via Zero Hedge http://ift.tt/1LkMCMs Tyler Durden

Deustche Bank stock is ripping 10% higher after confirming old news that it will undertake a modest debt buyback of $2 billion and €3 billion (not including the CoCos). Have no fear though as Wolfgang Schaeuble proclaimed Deutsche Bank is a “strong bank” that ios “resilient” and “well positioned.”

 

Back to the start of the week…

 

 

Full Statement:
Deutsche Bank announces a public tender offer to purchase certain series of EUR and USD-denominated senior unsecured debt securities.

The Bank’s strong liquidity position allows it to repurchase these securities without any corresponding change to its 2016 funding plan. 

The EUR tender offer encompasses the following securities and has a target acceptance volume of EUR 3 bn.
ISIN

• DE000DB7XHM0
• DE000DB7XJB9
• DE000DB7XJC7
• DE000DB5DCS4
• DE000DB7XJP9

The USD tender offer encompasses the following securities and has a target acceptance volume of USD 2 bn.
ISIN

• US25152R2U64
• US25152R2X04
• US25152R2Y86
• US25152RVS92
• US25152RXA66
• US25152RYD96
• US25152RWY51
• US25152CMN38

The tender offer is expected to be open for seven business days for the EUR denominated securities, and 20 business days for the USD denominated securities, subject to lower pricing for bonds tendered after day 10.

So that’s great – apart from it’s a drop in the ocean. But do not worry about Deutsche Bank as Wolfgang Scaeuble proclaimed:

• *SCHAEUBLE: DEUTSCHE BANK HAS ENOUGH CAPITAL
• *SCHAEUBLE: DEUTSCHE BANK IS RESILIENT, WELL POSITIONED
• *SCHAEUBLE: DEUTSCHE BANK IS A ‘STRONG BANK’

And we all know we can trust him.

via Zero Hedge http://ift.tt/1TcFS9J Tyler Durden

Yesterday we outlined that Central Banks’ War on Cash is about to go into Hyperdrive.

Today we’re discussing just the policies Central Banks are already working to implement to eviscerate savings.

Globally, over 50% of Government bonds currently yield 1% or less. These are bonds that are negative in real terms meaning they are trailing well below the rate of inflation.

Even more astounding is the fact that over $7 trillion in debt currently have negative yields in nominal terms, meaning the bond literally has a negative yield when it trades.

This means that when an investor buys these bonds, he or she pays the Government for the right to own. There is NO rate of return; by buying these bonds you are literally incinerating your capital. Large bond funds that are required to own certain types of bonds have no choice but to lose money.

However, this is just the start.

Back in 1999, the Fed published a paper suggesting the implementation of a “carry tax” or taxing actual physical cash using an expiration date if depositors aren’t willing to spend the money.

The paper, written 16 years ago, suggested that if the Fed were to find that zero interest rates didn’t induce economic growth, it could try one of three things:

1)   Buy assets (QE)

2)   Money transfers (literally HAND OUT money through various vehicles)

3)   A carry tax (meaning tax the value of actual physical cash that is taken out of the system)

We've already seen six years of ZIRP and $3 trillion in QE. Next up are outright money transfers and a carry tax on physical cash.

What is a "carry tax"?

The idea here is that since it costs relatively little to store physical cash (the cost of buying a safe), the Fed should be permitted to “tax” physical cash to force cash holders to spend it (put it back into the banking system) or invest it.

The way this would work is that the cash would have some kind of magnetic strip that would record the date that it was withdrawn. Whenever the bill was finally deposited in a bank again, the receiving bank would use this data to deduct a certain percentage of the bill’s value as a “tax” for holding it.

For instance, if the rate was 5% per month and you took out a $100 bill for two months and then deposited it, the receiving bank would only register the bill as being worth $90.25 ($100* 0.95=$95 or the first month, and then $95 *0.95= $90.25 for the second month).

 It sounds like absolute insanity, but I can assure you that Central Banks take these sorts of proposals very seriously.  QE sounded completely insane back in 1999 and we’ve already seen three rounds of it amounting to over $3 trillion.

No one would have believed the Fed could get away with printing $3 trillion for QE in 1999, but it has happened already. And given that it has failed to boost consumer spending/ economic growth, I wouldn’t at all surprised to see the Fed float one of the other ideas in the coming months.

The time to take action is now!

We detail what’s to come and outline three investment strategies you can implement right now to protect your capital from the Fed's sinister plan in our Special Report Survive the Fed's War on Cash.

We are making 100 copies available for FREE the general public.

To lock in one of the few remaining…

Click Here Now!

Best Regards

Phoenix Capital Research

 

via Zero Hedge http://ift.tt/1LkMBbn Phoenix Capital Research

Remember the vicious cycle that threatened the entire European banking sector in 2012?

It went something like this: over indebted sovereigns depended on domestic banks to buy their debt, but when yields on that debt spiked, the banks took a hit, inhibiting their ability to fund the sovereign, whose yields would then rise some more, further curtailing banks’ ability to help out, and so on and so forth.

Well don’t look now, but central bankers’ headlong plunge into NIRP-dom has created another “doom loop” whereby negative rates weaken banks whose profits are already crimped by the new regulatory regime, sharply lower revenue from trading, and billions in fines. Weak banks then pull back on lending, thus weakening the economy further and compelling policy makers to take rates even lower in a self-perpetuating death spiral. Meanwhile, bank stocks plunge raising questions about the entire sector’s viability and that, in turn, raises the specter of yet another financial market meltdown.

Below, find the diagram that illustrates this dynamic followed by a bit of color from WSJ:

From WSJ:

In a way, the move below zero was a gamble. The theory went like this: Banks would take a hit, but negative rates would get the economy moving. A stronger economy would, in turn, help the banks recover.

 

It appears that wager isn’t working.

 

The consequences are deeply worrying. Weak banks may now drag the economy down further. And with the economy weak and deflation—a damaging spiral of falling wages and prices—looming, central banks that have gone negative will be loath to turn around and raise rates.

 

Moreover, central banks have few other levers to escape that doom loop. The ECB has instituted a bond-buying program, but President Mario Draghi last month indicated he was ready to launch additional monetary stimulus in March. Japan’s decision to implement negative rates follows three years of aggressive monetary easing, aimed at ending two decades of low inflation and stagnant growth.

 

The pushes into negative territory also amount to a sort of competitive currency war that no one seems willing to call off.

 

Major economies around the world are desperate to spur inflation; one way to do that is to cut interest rates, which typically would make their currencies less attractive. Lower currencies raise the prices of imported goods and boost the fortunes of exporters.

 

Switzerland, Sweden and Denmark have all used negative rates to help ward off inflows of foreign funds that push up their currencies. Economists said an aim of the Bank of Japan’s move to negative rates last month was to weaken the yen. It hasn’t worked: The yen shot up Thursday and is stronger than it was before the rate cut.

 

The move below zero compounds the miseries for lenders in those countries. Banks traditionally make a profit by lending at higher interest rates than the rates they pay on deposits, a difference called the net interest margin. Low rates have already squeezed that margin, and banks’ funding costs from other sources, such as bond markets, have surged this year.

 

German banks earn roughly 75% of their income from the margin between rates on savings accounts and the loans they make, according to statistics from the

 

Bundesbank, the country’s central bank. Plunging rates dragged German banks’ interest revenue down to €204 billion ($230 billion) in 2014 from €419 billion in 2007, according to the Bundesbank.

 

Negative rates cost Danish banks more than 1 billion kroner ($151 million) last year, according to a lobbying group for Denmark’s banking sector.

Consider that and then have a look at the following chart, which certainly seems to indicate that we are on step 8 in WSJ’s doom loop…

Step 9 is when things really start to go south for the real economy. So buckle up. 

via Zero Hedge http://ift.tt/1TcFS9E Tyler Durden

As we have reported previously on various occasions things are bad for European banks: from DB’s record wide 5Y Sub CDS, to Credit Suisse record low stock price, to everyone else inbetween. But did you know that for most European banks, 2016 is shaping up far worse than the dreaded 2008? As the following chart from Reuters shows, the year-to-date stock price performance for most European banks is on pace to far surpass – to the downside – the dreadful for the global financial system 2008.

As Reuters puts its it, “Euro zone banks have seen their shares plummet by nearly 30 percent and yields on their bonds surge since the start of the year, as investors worried about thinning profits and uncomfortably high levels of bad loans in some countries.”

This is shown in the chart below.

 

One problem resulting from this collapse is well framed by Reuters: “A protracted selloff in the shares and bonds of euro zone banks has the potential to knock the fragile economic recovery off track by raising financing costs for banks, limiting their ability to lend. It may also undo some of what the European Central Bank has been trying to do to increase bank lending an pump up inflation via spending.

The selloff makes it more expensive for banks to raise capital on the market by selling shares or bonds.

 

If this situation were to last, it would dent banks’ capacity to grow their balance sheets by extending new loans to companies and households. This would jeopardise a tentative rebound in lending driven by the ECB’s ultra-easy monetary policy.

 

“This can have an impact on the economy, which is bank dependent in Europe,” said Sascha Steffen, professor of finance at the University of Mannheim. “And of course it puts more pressure on the ECB because it doesn’t help it bring back inflation.”

 

Bank lending in the euro zone started growing again in 2015 after shrinking for three years, but data for December data pointed to a loss of momentum.

 

* * *

 

But the sheer magnitude of the market rout shows investors are losing confidence in the sector.  A key transmission channel is the market for Additional Tier 1 (AT1) notes – bonds that can be converted into equity under certain conditions and on which the issuer can decide whether or not to make coupon payments.

 

* * *

 

“For the past year, ECB easing has been accompanied by private banks’ easing of credit conditions,” said Marco Troiano, a director at ratings agency Scope. “If market volatility reverses this, banks would tighten lending, negating some of the ECB’s efforts.”

In other words, after the BOJ’s and the Fed’s recent policy failures, unless the ECB stabilizes Europe’s banking sector, it too will have committed the gravest of central bank sins: policy error.

The problem, however, as Deutsche Bank explained very well in the post preceding this, is that there is a problem: while the market is desperately begging for a circuit breaker, nobody – certainly not the ECB – has any idea either what it should look like, or whether it could work.

 

via Zero Hedge http://ift.tt/1KKiJdf Tyler Durden