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Mercury

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Crikey, not sure I want the herd on board just yet...  When everyone swings prematurely to the other side it is often time to worry about the contrarian view but perhaps this is not the case.  I wonder whether the trend followers will hold to their bullish views for a while yet and hope the next NFP gives the Fed pause for thought.

 

I did love the following excerpt from the FOMC minutes last night:

 

"Some participants saw limited costs to maintaining a patient posture at this meeting but noted the risks—including potential risks to financial stability—of waiting too long to resume the process of removing policy accommodation, especially given the lags with which monetary policy affects the economy."

 

Cost to the economy or their positions?

 

And this one tickled me particularly, where have we seen this sentiment about the FOMC's concern with their credibility before?

 

"A couple of participants were concerned that further postponement of action to raise the federal funds rate might confuse the public about the economic considerations that influence the Committee’s policy decisions and potentially erode the Committee’s credibility."

 

And finally this one is perhaps telling as it is the first departure from unanimous dovish-ness for quite a while.

 

"A few participants judged it appropriate to increase the target range for the federal funds rate at this meeting"

 

 

In short it doesn't mean they will or won't raise rates in June but it places that possibility more firmly on the table if they can make a credible case out of the next round of data.  NFP anyone?

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Until the presidential election is over at least, unless the market takes the matter out of their hands, which it should and probably will do.  Unless the Fed does something rad like reversing its position and launching QE4 before the end of the summer any delays to action or even 1 rate rise will send the stock market down.  I suspect it will all be over before the election in November...

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Yeah don't know about that  is that support major or just cause for a retrace?  The bid that the FTSE got this morning was despite no "news" - does news drive markers or the other way around?  I think only surprise news drives markets like the Fed on Wednesday BUT should that have been a surprise?

 

Question: why, given the strong hawkish stance of the Fed and poor corporate results and high valuation levels, did the stock markets go up today so far (today is far from over...).  Could it be that sentiment is just massively, crazily with no fundamentals bullish?  Here is a little snippet from Hedgeye, which shows that the market expectations of Fed rate rises way high at the beginning of the year (cue market fall) then that expectation dropped significantly BUT even after the Fed made hawkish sounds the expectations did not move that much...  Either the market just doesn't believe the Fed or they don't want to believe the bull is dead!

 

https://app.hedgeye.com/insights/51073-a-quick-look-at-rate-hike-probabilities-before-after-fed-minutes

 

A little cartoon from Hedgeye to illustrate the problem...

 



 

Interestingly Hedgeye are touting Long positions on long term US bonds, utilities equities and gold - all defensive plays... 

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As the FTSE and the DAX drop off this mornings highs with overbought indicators retreating also I am left thinking that this is unlikely to be a wave 3, unless a drop pick up pace soon.  The overall impression I have from looking at the S&P500 is that their wave 1 down has not yet completed and may do so in or around the Fib 38% level off the 11 Feb low.  In macro terms (daily chart) I see a head and shoulders formation with a small break of the neckline and kiss back and anticipate a further fall to the support zone around the Fib 38%.  Depending on how this traces out there is a strong likelihood that this will complete the wave 2, after which a retrace back toward the neckline is a likely scenario.

 

A break of the neckline to the upside, with associated breaks of resistance zone and tramline on smaller timeframe charts negates this of course.  US open once again will tell the tale but despite the strong rally in Europe (more in FTSE than Dax) I am leading to an approach of the Fib 38% levels before a strong retrace at the most likely scenario.  Surely the Feds hawkishness cannot be so easily dismissed?  Wouldn't a Bull want a better entry point?

 

  

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Agree with this assessment  however we have to guard against the scenario that a wave 1 end and turn has already happened.  I think another leg down is likely but this whole move has seen quite a lot of whiplash back and forth so has been hard to call and trade, this may be typical of a wave 1 where the bulls vs bears struggle has not yet been resolved.

 

On my Dow chart I have this current rally as a 3-4 retrace with a final wave down to complete the bigger picture wave 1 move, after which we can expect a strong rally.  I see a similar picture on the other US charts, although the Russell and Nasdaq are a bit more bullish.  On the 4 hourly chart we have yet to see a Pos Mom Div, which I would usually like to see at the end of a large scale move, this we would get on another leg down.  On the hourly there is Pos Mom Div, which could mean the wave 1 has completed.  Either way it is difficult trading and one might be better served waiting for a clearer resolution to this move.  If trading Short the down side doesn't look that large so small positions with close stops are the thing I think.

 



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Dears,

 

 

I am new to this Community. Information here very useful :). I am focusing on Wall Street Cash.

My short sell position stopped out because of long bullish bar! :( When i am looking back the weekly chart, just realized last week candle formed a Doji. (Weekly) Could it be this Doji candle bring some bull run on early week?

 

Sorry for my ignorance, please correct me if my view is wrong

 

 

 

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  • 3 weeks later...

Yeah you have to be careful with chartist patterns, especially the more complex ones.  For me H&S is only really relevant at major turning points and even then needs corroboration from other analytical sources.  When they work they work really well but you have to see it complete rather than preempt it.  Same for Triangles and so on.  Not a fan of using these things in isolation.

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Possible but one thing that might be useful is some analysis on what sectors are driving the current rally.  This is something I have suggested to IG but no sign yet.  If the rally is driven by utilities, FMCG etc then these are more defensive and suggestive that the rally is not growth company driven and therefore is likely to stall.

 

Here is my take on the US markets (or at least the S&P).  My Monthly/Weekly analysis is unchanged so will start with the Daily.  My bias is for a new all time high (I'd like to see it so we can get it over with and focus on what happens next so bear that in mind).

 

On the Daily there are really only 2 scenarios left:

  1. A very odd looking wave 1 down to Feb 2016 now rising to an almost double top wave 2 leaving the all time high at May 2015.
  2. An A-B-C to Wave 4 at Feb 2016 now rising in 1-5 for a new all time high

For #1 the current turn down does support this this with Neg Mom Div at recent high but the EW count is difficult to make for an A-B-C from Feb 2016 and Stochastic is in over sold so we can expect a reaction soon

 

For #2 the EW count works much better and with price so close to all time highs one can easily see a new high.

 

Looking at the 4 hourly (similar picture on hourly) we can see a possible A-B-C (red) supporting a wave 2 O(purple) completion and turn down but this is a huge wave A so not a high probability in my opinion.  More likely is a 1-5 motive wave and in the final wave 5.

 

This being the case I would expect a retrace back up soon which will either be a 1-2 (blue) in A-B-C form followed by another fall which would confirm scenario 1 as the current move down fits a small 1-5.  Alternatively the retrace kicks on to fresh all time highs and completes the 1-5 up and then the drop begins.  Given where we are and the current pattern it seems likely that any fresh all time highs will not be extensive and other markets may not achieve them.

 

Given the lack of clarity at present I am awaiting developments from the sidelines and focusing elsewhere on better set ups.

 



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  • 2 weeks later...

Using the S&P500 my long term chart (weekly) shows the possible path to a new all time high,  There is decent Neg Mom Div on all timeframes so we cannot rule out a Wave 2 (purple) peak and the beginning of a strong drop but so far there was a strong bounce off the rising supporting tramline on the weekly chart and the potential Wave 4 turn hit an alternative tramline pair.  The preceding pattern is a much better fit with an A-B-C retrace to 11 Feb 2016 low, which would suggest a Wave 4 rather than Wave 1 and the form of the strong rally to recent highs was more like a 1-2-3 of a 1-5, which suggests another leg up.

 

The 4 hourly is similar to that of the FTSE in that the move down may or may not yet be completed and another leg just below Friday's low could easily happen.  So I expect the early part of next week to remain volatile but sometime during the week we should see which scenario is playing out.

 



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So much for a Brexit induced stock market crash!  The FTSE is actually up 3% on the pre Brexit rally low (16 June) and the US large cap markets are in a potential turn back up.  Of course this IS a prelude to a crash but not because of Brexit and not just yet.

 

On the S&P hourly I see a small 1-5 forming in line with FTSE and DAx rallies.  I expect a small retrace before the final push back up.  Any Longs should be treated with extreme caution and I would not be minded to think about shorts until the US large caps show a clear turn down, which they have not yet in my book.

 

Anyone think the reverse?  Let us know the reasoning won't you?

 

 

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I'm anticipating a retrace drop off as we move closer to NFP on Friday followed by a turn into a wave 3 strong rally once the retrace concludes.  This has been a strong initial rally, which puts the whole Brexit thing into proportion (i.e. didn't make the slightest difference, the central banker coolade is still free flowing...).  With a medium term forecast of fresh all time highs Longs from after the NFP release, once the turn back up is established, are on the cards.  Next week is shaping up to be choppy at best with an overall downwards trend until the next big push up is started.

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US Stocks not particularly bullish after lackluster FOMC minutes, kicking the can down the road once again and saying they needed more jobs data after the May sharp reversal.  Will we get a drop towards NFP now and if NFP shows another poor data set in terms of jobs added them the chances of a USD rate hike must fall to zero.  This ought to herald a stock rally and USD drop (at least in the short term).

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  • 2 weeks later...
  • 1 month later...

We haven't had a post on US stocks for quite some time, I guess people are watching and waiting, I know I am.

 

I noticed something interesting on the Nasdaq recently, a double top that shows on several time frames.  This could be a Top out but at present I am dubious, it seems more like a retrace turning point to me but it may support my broader analysis of a significant retrace (relatively) prior to a final exhaustion rally to the Top on US stocks.  Other US indices are showing Triangle formations that could also be suggesting a retrace OR ending Triangle I suppose...  Whether it is now or a little later the US markets do appear to be faltering...

 

For me I think that stocks will retrace down further from here and then rally but will that rally be another leg higher or form a lower high that would confirm a Top out?

 



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S&P500 is in the process of breaking out of a Triangle formation to the downside, in line with the FTSE100 and the Nasdaq and Russell are coming up on similar critical points.  All points to a retrace prior to Jackson Hole utterances to me with a relief rally post this a likely nest move.

 

I have some tactical Shorts but will clear them all before the weekend and wait again in the long grass for NFP week.  Things are certainly brewing up in the melting pot, next few week could be very interesting indeed...

 



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