Is the Equinox Effect working again?
There was a slight delayed reaction, but the Treasury market finally heard the penny drop from the Fed’s announcement that rates will rise. Of course, we all knew that would eventually happen, but the timing was the only thing in doubt. Make no mistake – the Treasury market holds the key to most other markets.
And what about the timing of the trend reversal in the bonds? The Fed news emerged on Wednesday the 22nd which was right on the Autumn Equinox.
The Equinox Effect
So why was that particular astronomical date important for markets? Good question. From years if observation, many trend changes occur at or around the two Equinoxes – with currencies being particularly prone. In one way, that makes sense as the Equinox divides the year into expansion and contraction phases of the earth’s orbit around the sun.
And recall the major Corona Crash lows seen on many charts occurred on the vernal Equinox last year.
And we all know it is the sun that drives most forces of nature, including the growth/decay of plants – and also some human activities (including trading sentiment?). If you have a garden you will see many summer plants starting to wilt and die.
We have been in the summer months of growth of expansion (of flora and markets) and are now into the autumn months of contraction. For humans, the expansive summer months outdoors are giving way to the contraction and more time spent indoors of autumn and winter.
And significantly, many markets have now very likely changed trend right on the Equinox – from T-Bonds to NatGas to possibly PMs. We have seen a rally high in the stock indexes top out on that date, although it is too soon to claim a trend change in the US and UK indexes just yet.
For example, here is NatGas, the market on everyone’s lips at the moment (including politicians and the media, of all people!)
After we took some profits near the 55 high, we re-established them on the dip on the date of the Equinox since I judges that was a great candidate for the trend to reverse to up.
And here is Gold:
Note there is a major mom div between the ‘a’ and ‘c’ wave lows – heralding a major uptrend. The pull-back off the 6 Sept high is a Fib 50% correction of the rally off the ‘c’ wave low which makes it also a great candidate for a major low in addition it falling on the Equinox. Of course, it is too soon to verify the trend change and I await confirmation with advances next week.
And here are the T-Bonds
Note the wave up is wave 2 not wave 3 as on the chart.
The rally high occurred on Wednesday – right on the Equinox and the reversal induced an unusually strong impulsive move lower by 3 big points on that day as if it abhorred the 164.50 level. I believe that has now signalled a very strong kick-off to a major bear trend. With DSI bulls pushing 80%, which historically is at the upper end of its range, I expect massive long liquidation in the weeks ahead – and a consequent boom in yields. Stocks beware!
And here is another major commodity that has turned back up on the Equinox – Cotton. Now that hot commodities are right in the eyesight of traders/investors, it pays to look across the commodity board for opportunities that others are missing. I have been trading Cotton for some time and have been following its upside progress since last year, Here is the long term monthly
Except for the massive spike in 2011 to the 225 top, in recent years it has been trading within a narrow range and was off the radar for most traders. But in recent months, it has been edging up and is now close to the zone of strong resistance around the 100 mark. Given the large mom div, odds are high cotton will shoot past it – and that event would be picked up by a lot more technicians and propel it way above that zone.
Here is a close-up of recent action
I have a very pretty 5-wave wedge in the wave 4 position with upside breakout in the summer, a pull-back to kiss the lower trendline and then an upside reversal bang on the Equinox! How’s that for a direct hit? And the fierce upside rebound off that kiss qualifies it as a Scalded Cat Bounce – just as in the textbooks. That is very satisfying.
Yes, anyone can trade Cotton – it is just another market on your spread bet platform. But you need expert chart reading skills to avoid the many traps that lurk in all markets. So why not take a two-week Free Trial to my VIP Traders Club here and see for yourself how you can negotiate the dangerous rapids on my advice.
We also trade NatGas and Crude and many other commodities which are currently running very hot. And I recently changed my stance on the US Dollar – see for yourself how that has impacted our trading gains.
With a generally strong stock market, we are trading selected shares for my Pro Shares service including Rolls Royce and the very hot Japan market. Take a generous three-week Free Trial here,
Rolls Royce is taking off….
For my Pro Shares service, we have been trading this venerable FTSE 100 share and I believe is on a flight to higher altitudes. A while ago, I noted the absolutely stunning mom div at the Corona Crash low last year and with sentiment on the floor then, odds were very high a substantial rally phase lay ahead.
From last year’s low at the bargain basement print of 32p, it shot up to the high in December and since then has been in consolidation mode but last week, it surged upwards to a new recovery high. Given the lengthy consolidation and the large mom div, I have a first target around the 180 area (latest 132).
It would not surprise me to see headlines soon announcing take-up of their nuclear reactors by one or other government. Nuclear has become a no-brainer since the wind has stopped blowing recently in Europe and ‘renewables’ have failed. NatGas (and coal!)s has been called on to make up the deficit to keep the grid functioning and so a big thank you to our ‘green’ politicians who have put their faith in the wind.
…. and so is Cineworld
This is another share that has been battered down by the pandemic. But that has resented a massive opportunity.
But prior to the Corona Crash, the shares slumped in late 2017 and the pandemic was the final nail in the coffin – just before it started rising from the dead (but fitfully). The shares have just completed a Fib 50% correction and is now heading north.
The massive gap stands out like a sore thumb and is acting like a magnet for prices. Given the mom div, I have a first target on the gap edge of around 300 (latest 71). The negatives are well-known including the debt load and with bond yields on the way up, that may well become a problem.
As for cinema attendances, they are likely to pick up as more people receive the vaccine especially the younger crowd who go to the pictures/movies. And they consume vast quantities of high-priced popcorn to boot!
Will nuclear shares go nuclear?
There has been a sudden increase of interest in uranium and associated shares. One popular vehicle is the Sprott Physical Uranium Trust Fund.
Just this month, the market has realised that nuclear energy is on the brink of being fairly widely adopted since it has many advantages over ‘renewables’ and no evil CO2 to worry about. It can provide base load which ‘renewables’ never can.
In any case. we have a new high made on 13 September and a clear three down to the Fib 50% retrace. The shares will either start turning up from here, or from the Fib 62% area around the 13 area.
The buy/sell spread on my platform is quite wide and is not very suitable for spread betting. A better spread bet vehicle is Yellow Cake (covered previously). But tucking some away in a share portfolio – that is a different matter!
Investors are piling into US shares – at the top?
A most remarkable surge in funds going into global equities is occurring. Here is an amazing chart that demonstrates this
and the year isn’t over yet! Putting this in context, this surge is occurring after a multi-year bull market where valuations are extreme and the S&P has gained an incredible 120% since the Corona Crash eighteen months ago.
Investors are thus going all in at the most expensive levels. They have no fear that markets could fall. I have a sneaking feeling they will live to regret this extreme herding.