My HI Indicator is working overtime

My HI Indicator is working overtime

In recent posts, I have been using my Headline Indicator (HI) extensively with the most recent example on 13 October when I asked “Will hedge funds start to lose money in sterling?”.

Here, I made a case that because of the extremely dramatic headlines suddenly appearing in the MSM describing in gory detail the Flash Crash on 7 October, a low in the GBP/USD must be close.  And that a decent short-covering rally at the very least is highly likely.

Remember, sterling has been in a strong bear trend for over two years and this dramatic event occurred after a very steep slide – just when even the Men from Mars have taken note.  Even shoeshine boys (or their modern equivalent) are talking about the ‘plunging pound’ – and complaining about only getting less than 1 euro to the pound at the airports.

Adding to the extreme bearish sentiment, the wily veteran speculator Jim Rogers appeared on BBC radio and forecast the pound would reach parity at some point.  He pointed to the horrible UK balance of payments deficit that has become firmly established as a ‘reason’ for the weak pound.  All in all, he offered no hope for any improvement in the exchange rate.

And that radio appearance made me sit up even straighter and glance over at my HI needle which was by then  right off the scale! Remember, when a well-known market personality/guru appears on the largest radio station in the country and gives a no-bullshit market forecast that conforms to the herd’s opinion, you can bet your boots the trend is about to turn.

Can you imagine a contrarian  appearing just after the Flash Crash who defied the consensus that sterling is headed lower – and forecast a rally?  I have never know such a thing – that person would not be allowed on the air.  And that is why a turn is inevitable.

I am willing to bet that Rogers covered shorts and went long just before his radio interview!  He didn’t get to where he is by trading with the herd.

As I write, GBP/USD is up over a cent this morning.


And HI is flashing again in Gilts and T-Bonds

I have been bearish T-Bonds since the summer high.  In fact, based on a very clear Elliott wave pattern, I was able to enter my short trade to within a few pips of the actual high.  That was when everyone was bullish, of course. Stocks were in retreat and it seems all sovereign bonds were heading into negative yields. Central banks were running out of suitable bonds to buy and were pushing yields ever lower.

But I spotted a very clear chart pattern and with COT data showing a huge mismatch of speculator long/short positions, I decided to pounce when T-Bonds were trading at the 178 level.

Yesterday, they reached the 162.60 low for a magnificent bear move of about 15 full points in less than three months.

Bonds and gilts do not receive anywhere near the same MSM coverage as stocks and currencies, so when a headline on them appears, I take an especially keen note because a major event has just occurred.  I know to expect a bearish slant if the market has been falling, and a bullish slant when it has been rising.  This is a highly consistent pattern in MSM articles.

And lo and behold, in today’s Telegraph AEP has a bearish note on gilts: “Foreigners shun Gilts as Halloween verdict awaits”  He says the bond vigilantes are sharpening their knives and points to the rapidly increasing yields (lower prices). 

But AEP did post a very revealing chart of the Pound Index against the 10-yr Gilt yield

They have been tracking each other consistently – until a month or so ago when they went their separate ways. What is this telling us?  That demand for gilts is dropping as the UK credit rating is under increasing pressure and sterling is falling from Brexit worries that balance of payments might produce a crisis up ahead.

This is not a comforting development for UK finances.

Of course, a gilt market rally in yields heralds an increase in inflation – and that is precisely what we got today with headline rate reported up to 1% – and much higher than expected.

To be a successful trader, you must anticipate these moves – and this one wasn’t too difficult to judge with energy prices rising and sterling falling in recent weeks.

But my main trading vehicle is US T-Bonds which has traced out a wonderful EW pattern

Yesterday’s low at 162.60 came within a whisker of hitting my long-standing target zone of 160 – 162.  If the market trades above my upper tramline, I will know a decent rally phase is at hand.

I advised VIP Traders Club members to take some profits off the table on this move.  Members shorting at the 178 level, that represents a profit of about 14 full points or $14,000 profit for every £10 spread bet.

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