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Market Puzzles!... and their solution

Sat, Apr 5, 2008 - 12:00am

Keep claiming those free Danielcode charts. Exclusively for Financial Sense readers kind enough to register (free) at my website I invite you to claim a current Daniel number sequence chart of your choice. New charts for the week are posted before the US open each Monday so I suggest you claim your free chart on Monday when next week's charts will be posted at the Danielcode Online.

globe seen through a missing puzzle piece. fotosearch - search stock photos, pictures, images, and photo clipartPuzzles are a great whole of life experience. As children we rejoiced in the simple fretwork puzzles that taught us about spatial connectivity and which morphed under the relentless pulse of standard business vision stated as "more, better, faster, cheaper", into cardboard nasties that usually had at least one errant piece hiding under the rug to be vacuumed up by mum and lost forever. The joy of puzzles is that absent the lurking vacuum cleaner they had a wholesome self sufficiency and some immutable rules. All puzzles had 4 corners, the edges were always straight and there was a home for every piece no matter how complex the positioning of that piece became. There was an easily defined space in which the puzzle operated. There were rewards and consequences. If you played by the rules and stuck to the task, you were rewarded with the finished picture which gave satisfaction in almost inverse proportion to the picture's banality. If you failed in your mission there were no rewards.

As childhood morphed into adulthood the straight edges and corners disappeared and no one knew how many pieces of the puzzle existed or where they were if they indeed existed. For those who take on the ultimate challenge of the puzzles in financial markets, an added layer of complexity is added by the issue of time. Our two dimensional puzzles of long ago did not have to contend with this beast. They were simply complete and correct or not. For traders and market observers the challenge is not only to be correct but to be continuously correct at significant points in time which we call turning points. For long term investors turning points mean one thing and to futures and forex traders juggling the twin edged sword of leverage, another thing entirely. I tell my students that they must live in their trading time. Hedgers and investors working from monthly and quarterly charts will see markets differently to active traders working from daily and shorter term charts, so what looks from a long term horizon as a mere correction will look more savage up close.

This is the International Markets Index. Despite the travails of the global credit fuss universally described as a crisis, and the undoubted pain if you are a late cycle buyers in a poorly performing housing sector, markets just don't think it's a big deal. Yet!

Since the new all time highs were made in April 2007, no month has closed below the March 2000 closing high. The resilience of international markets in the face of the apparently profound problems in the financial sector is a puzzle.

Gold and Silver

A longer perspective of Gold shows much the same pattern. The Danielcode caters for a broad range of traders and investors as our weekly chart below shows. Gold found its March top just 2 ticks from its weekly Daniel sequence number. Long term investors and bullion owners are sublime about the latest pullback. They have found the corners of their childhood puzzle and are confident that present market action is merely a healthy pullback in an obviously overbought market that will lead to further buying opportunities.

Gold and Silver opportunities

Those with a shorter time frame and that includes traders, will see a different picture and one that is equally valid. For those who follow the "Gold is money" hype, the 3 dimensional nature of "time" in markets can be brutal. A closer picture of Gold shows the dive to its Daniel support at 905.50 before a tepid two day rally and the plunge to its DC target of 874.90. You needed the Daniel numbers to see the high probability price levels for this market. Now back at 905 the Ides of March heralded a $129 or 12% reduction in the worth of this "money".

Gold loves the Daniel numbers and the dreaded "cartel" uses them constantly (see Prophesy! in my FSO archives). If you are a Gold trader or investor you need to know these numbers. They have marked every swing in Gold this year.

comex this year

Gold bugs will argue that US currency (and it's not alone) is debased by this amount every year in unfunded spending programs, real life inflation and more recently the socialization of bad debts and spending excesses in the investment and banking world by the Fed, Treasury and other Federal institutions determined that whatever else may happen, market forces will not be allowed to sort out the problems. And they would be right.

On the other side of the globe, institutions are braying about those pernicious short sellers who are apparently to blame for all the Australian market's ills. Opes Prime, a registered ASX broker in Australia went belly up leaving Merrill Lynch and ANZ Bank holding the can to the extent of $2 billion. Australian Business reported on 31 March 2008:

THE collapse of Opes Prime will wreak havoc on the small to mid-cap sector over the next couple of weeks as its main creditors, ANZ Bank and Merrill Lynch, retrieve their money by liquidating a $1.5 billion portfolio of Australian shares filled with stocks, including ABC Learning Centres, Allco, Clive Peeters, Hedley Group and Just Group. And a day later followed up with this headline:
THE collapse of stockbroking firm Opes Prime has widened into a full-scale investigation of false accounting and manipulation of six key accounts worth $200million to help clients to avoid margin calls. It is alleged that Opes staff moved shares between the accounts of clients with margin loans in a "round robin" fashion. By moving shares, or by changing loan-to-valuation ratios, accounts could be made to look healthier, avoiding margin calls that could have forced the clients to dump shares or inject extra cash.

This is a great story and I encourage you to read it. The CEO of this outfit apparently changed his name by deed poll to "Mr Emini" before continuing the great Australian tradition of stiffing the lenders and punters. In a curious twist to the usual scenario, the senior officers of Prime are actually going to be held accountable for at least some of their deeds with the Federal Court promptly requesting Mr Emini's passport and asking him to postpone his travel plans. Betcha the wives own the mansions! Any takers?

The Sydney Morning Herald expanded on this latest Aussie rort:

Brokers flat broke as debt crisis enters new stage. If an unknown broker can lend $1 billion, how much more is out there? LAURIE EMINI was barely known, even in the business world, outside a relatively small circle of contacts. Now he is all over the front pages of every newspaper in Australia and he is considered a flight risk, with his passport confiscated, as authorities investigate a potential shortfall estimated at A$100 million (NZ$115 million) in the accounts of Melbourne stockbroker Opes. That's not the half of it. The more pressing matter is the A$1.15 billion in loans over shares "margin loans" taken out by 1200 investors. Opes, like the deeply troubled Sydney company (registered ASX broker) Tricom, was merely a middleman in the margin loan business. It borrowed the money from ANZ Banking Group and Merrill Lynch and on-lent it to retail investors who, in general, were raising cash to buy more shares. In many cases, they were company directors raising cash to exercise options over shares. The Opes collapse has reinforced concerns about the extent to which debt underpinned the sharemarket boom of the past few years and the consequent forced selling now pushing the market lower... This is no longer related just to American real estate.

Borrowing to buy shares! Debt crisis no longer confined to US real estate! Fancy that. Wonders will never cease.

The now ended financial growth cycle has gone on so long that players in almost all markets from housing and commercial property to stock and credit markets have only one game plan and that is dependent on ever rising markets. Be careful. It won't always be so.

Silver has fared better and is relatively stronger than its cousin Gold as it has so far managed to hold its Daniel sequence retracement at 1685 on a daily closing basis.

comex silver

DX

The fate of Gold as an international hedging commodity is largely dependent on the future of the US Dollar. In my article for Financial Sense on 29 February 2008 (see FSO archives) I said:

...this market is searching for the next level. The major Daniel monthly number sequence has picked 4 of the 5 trading levels in this market since its top in 2001 with other support levels being made at intermediate Daniel sequence numbers. The numbers suggest a continued long term decline until at least the next Daniel support at 70.40.

dx dollar index

The March low was 70.70 just 30 ticks from its monthly Daniel sequence number. DX is currently at 72.04 and struggling to rally meaningfully. If 70c is broken, the next Daniel support is at 66c.

Commodities

These are the Danielcode charts posted for subscribers at the beginning of the week:

Corn

corn cbt

Crude Oil

crude oil

Wheat

wheat comb

They have all turned with precision at their Daniel number sequences.

US T Bonds

us t bonds daily

T Bonds used the 117 DC number for two days before falling to its present perch just above the next Daniel price level at 116^28.

t bonds daily bars

Equity Indices

Like all of the Danielcode charts, the charts of these markets are posted well in advance so our subscribers can be prepared for the new week. These are not mystery numbers slyly revealed during the hectic trading day which you might miss if you blink. In fact living on the other side of the world to most of you, I am often asleep during US trading hours! This chart was posted at about 5AM US ET Monday at the Danielcode Online. My members were looking for support at the DC numbers of 12202, then 12151. The upside targets were 12582, then 12710.

equity indices

The chart below shows how the week has panned out for subscribers so far. From the News page at the Danielcode website:

"Great trade in the DJ on the Daniel numbers. Monday's low was 12159 just 8 points from its DC number. Wednesday's high was 12690 which was 20 points from its second upside DC target. Very neat so far and new charts are being posted soon."

djia june 2008

Future DC price levels not yet reached have been deleted on the current charts in this article in deference to subscribers.

The S&P performed equally well as reflected in my website comment: "S&P futures low for Monday was 1313.70 against the Daniel number retracement of 1315.15, a variance of 1.5 points or so. Nice trade also."

Did you have these numbers before the markets opened on Monday or were you reacting to every market squiggle during the week?

sp500 liquidity

Forex and Currencies

Here is Monday's chart of Euro-Yen showing Daniel sequence resistance at 159 and 160 and the first upside target at 160.99. At the time of going to print its high for the week has been 161.10. Not bad for numbers created 5 days earlier!

Forex and Currencies

Readers and visitors to the Danielcode website are often amazed at the consistency with which markets turn at their Daniel sequence numbers. Nothing in the Danielcode tells us which number in the number sequence will provide the turn; that part can only be determined by price action so you do need to be a competent trader to reap the benefits, but I have many new traders who are learning by doing. Others are attending my tuition programs or organising Danielcode seminars in their area.

In order to respond to the naysayers who are rightly suspicious of websites and writers who only reveal selected material which reflects favourably on their activities, I periodically compile a trading report for FSO readers and visitors to peruse. This week I have finalised a report on the Daniel charts posted for subscribers in the week ended 28 March 2008. In it I review every market that I covered during that week. There are 28 separate markets covered ranging from Gold and Silver, T Bonds, S&P and Dow Jones Index and futures, Wheat, Corn, Oil and CME currencies to a host of Forex pairs. There are successes and there are also failures, but not many!

The Danielcode is the solution to many of the markets' puzzles.

I invite you to read this report under the "Trading Reports" tab at the Danielcode Online. When you have reviewed the material including the charts in this and previous Financial Sense articles available in my FSO archives, you might ask how a new and largely unknown analytical method can determine turning points in so many diverse markets with deadly precision. Do all markets trade the same and respond to the same number sequence?

That is another puzzle for traders and investors to ponder.

Copyright © 2008 John Needham

About the Author

Lawyer and Financial Consultant
jneedham [at] thedanielcode [dot] com ()