Wednesday, February 10, 2016

A stealth Bull Market...and at the end "The Dominoes Fall"

Today we are presenting the following chart(weekly)

As you can clearly see, the underlying asset is in a bull market:
A.Around late 2014  EMA21 crossed above EMA55 ("golden cross")
B.Since then:
1.Price>EMA21>EMA55 (most of the time)
2. the price has found a solid support at 55 EMA
3.RSI has been above 50 and recently found support at 40

Alas...The above chart represents the TED spread.From Wiki(emphasis is ours):"The TED spread is the difference between the interest rates on interbank loans and on short-term U.S. government debt ("T-bills"). TED is an acronym formed from T-Bill and ED, the ticker symbol for the Eurodollar futures contract. The TED spread is an indicator of perceived credit risk in the general economy,[2] since T-bills are considered risk-free while LIBOR reflects the credit risk of lending to commercial banks. An increase in the TED spread is a sign that lenders believe the risk of default on interbank loans (also known as counterparty risk) is increasing. Interbank lenders, therefore, demand a higher rate of interest, or accept lower returns on safe investments such as T-bills. When the risk of bank defaults is considered to be decreasing, the TED spread decreases.[3] The long-term average of the TED spread has been 30 basis points with a maximum of 50 bps. During 2007, the subprime mortgage crisis ballooned the TED spread to a region of 150–200 bps. On September 17, 2008, the TED spread exceeded 300 bps, breaking the previous record set after the Black Monday crash of 1987.[4] Some higher readings for the spread were due to inability to obtain accurate LIBOR rates in the absence of a liquid unsecured lending market.[5] On October 10, 2008, the TED spread reached another new high of 457 basis points."

Unfortunately TED spread "stealth bull market" indicates further (significant) pressure for Equities and Debt markets.To paraphrase a quote from one of our favorite movies:
With so much bad Debt, something will snap (see DB). And when it does, things will turn nasty. And then central banks will be forced to do the only thing they know how to do.