I have long pointed to the date of 10 May as one of critical importance for markets. That was when the Dow made its first ATH at the 35,100 level. It was also the precise date that Copper and Iron Ore futures made their highs and both are down by 12% and 35% respectively.
So what is so important about that you may ask considering that the Dow made a new ATH on Friday at 35,250 – 150 pips above the May 10 high. To me there is a glaring mismatch here.
Copper and Iron Ore are two of the most basic commodities used in construction. And there is a $2 Trillion ‘Infrastructure Bill’ going through Congress that promises a great deal of new construction ahead for the USA. So why are their prices falling?
Also, the Baltic Dry Index (the index of ocean-going shipping rates for bulk commodities) is making new highs and this does not suggest a weakening of demand for bulk commodities such as Iron Ore or Copper. So what is going on? Are these commodities just settling back after a lengthy run prior to another major leg up, or is there a different message here?
Another piece in this jigsaw puzzle is the share price of the giant commodity producer Glencore. It is near its recent high. Compare the falling prices for its mining output and the rising share price and we see an obvious mismatch. So why is not the share price falling?
And on Friday, the latest US jobs data were blockbuster which hit the long-dated and inflation-protected Treasuries with yields surging. This was based on the conclusion that inflation is not going away any time soon and also the speculation that the Fed will need to ‘taper’ sooner rather than later. Yet the Dow gained 150 pips on the news. How perverse is that!
Surely, if the Fed will cut back on its bond-buying programme sooner than assumed, the evil day they will be forced to raise short term rates is approaching. That would hit stocks in the normal ’cause and effect’ model (that almost every analyst uses). Yet they went the other way on Friday (at least the Nasdaq did manage a slight decline).
For my VIP Traders Club and Pro Shares members, I have started a major campaign in Asian stocks that have recently taken a hammering. This study can be used by spread betters and investors alike. To take a two-week Free Trial to my exclusive VIP Traders Club, sign up here. We trade stock indexes, currencies, T-Bonds and commodities including Gold/Silver.
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Gold and Silver now in retreat
We have been trading both from the long side – until Thursday when I noted an unexpected spike up/down on Wednesday. That action killed my bullish wave count and I advised exiting all long positions just before the utter collapse on Friday (phew – that was close!). Gold lost $40 and Silver 90 cents on the day. That was superbly well-timed piece of advice.
And what a great lesson in how to trade professionally – and to be always on the alert to unexpected price movements. This was the setup into the sell-off
That ‘horrible spike’ was all the input I needed to know that my bull case was suddenly on shaky ground. Obviously, the $1830 level was very powerful resistance. This was the high of the spike and also where two previous highs were made. With such uncertainty, I just had to advise exiting the trades and then observe from the side-lines. If I was wrong, I had the option of getting back in if the $1830 resistance could be overcome. But it was not to be and I now have a very bearish outlook and if interest rates are heading north, that would put even more pressure on the PMs.
That was an excellent ‘lucky’ escape! This is the weekly
With yesterday’s decline it has placed it right on a test of the major support trendline. A sharp decline from here would set up my wave labels and the next target would be the wave 1 or A low at $1680. Silver is in a very similar position with the market currently testing a major support trendline.
And this fits in with the sudden reversal back up in the dollar last week
I have been running the major trendline for some time and last week, the reversal took it back up to that line. Note the accurate touch points on this line since September. This is entirely consistent with the notion that bond yields are rising and short term rates will follow shortly. It appears we are at the start of a major third wave up.
Note that the usual relationship ‘Strong dollar, weak PMs’ has been holding for months and I expect that to remain holding.
T-Bonds have finally topped
I confess I was surprised by the continued rally in the T-Bonds in recent days. I had expected the turn lower by then. But that had to wait for the release of yesterday’s jobs figures to confirm the turn. They advanced to the 167 level in wave 4 and then began a sharp retreat and closed Friday at 164. Naturally, given the implied stronger economy based on Friday’s jobs data, inflationary expectations were enhanced
And it is now testing the major trendline support. With DSI bulls at a recent 90% extreme, there is lots of room for the wave 5 down to develop. I am starting as major campaign for VIP Traders Club members.
I realise many traders have not considered trading the T-Bonds as they are unfamiliar with them. But a chart is a chart is a chart so what does it matter what it is called? This is the biggest market on the globe and the most liquid. It should be part of any serious trader’s portfolio.
One Chinese stock has lost 96%
There has been a change of heart at the top in China. Xi has decided the educational system has gotten out of hand with the almost universal ‘cramming factories’ that force kids to achieve great grades and supposedly enhance their prospects. Parents have been left little choice but to enrol their offspring into them. TAL Educational is/was the leader in this field and they have been forced to close these operations with the loss of many teaching jobs. The income of the company produced was mammoth.
But with no revenue from these operations, will they turn to individual mentoring we are familiar with here in the West? We know Asian mothers have a ‘Tiger Mom’ propensity, so this is one option. The company is cash rich and Chinese entrepreneurs are among the savviest and versatile on the planet, so it is unlikely the company would not re-invent itself. So at the current 6.00 mark, are they a great buy here?
That was some journey! From the ATH in February at 90 to last week’s 6 print in six months! This is either a dumb trade or one of the year’s best!
We know that the Chinese authorities can move markets and can turn around on a dime (or yuan?) so any whiff of a softening would likely induce sharp rallies.