Weekly Wrap

We have all heard of Teflon politicians where negative press just runs off them leaving them unscathed. Well, the US stock markets surely qualify as Teflon markets. Last week the revised GDP figure came in at a negative 1%. But that was OK – it was the weather, stupid.

And what’s more, GDP will have a 4 in front of it next time, so why worry?

So bad news was good again and the Dow closed the week over the 16,700 level.

It appears we are on the way to my 16,800 target area. I would dearly love to see an overshoot on this seven-year old resistance line:

Momentum is drooping and the rally is being lead by fewer and fewer issues.

What will turn this monster around? Of course, it is sentiment that drives the market and at present, sentiment is off-the-scale bullish. Here is an eye-opening chart:

chart courtesy elliottwave.com

Is this third time lucky? Bullish sentiment is back to levels last seen at the two major tops since 2007. Of course, it could go higher, but the rally is surely on borrowed time.

And here is the latest COT:

The trend-following hedgies are doing their usual thing – piling in on the trend with last week’s quite massive swing to the bullish side of the boat.

Virtually no-one out there is forecasting a collapse – and this is a perfect scenario for this to occur, of course. In fact, it is absolutely essential for there to be no fear of such a catastrophe in order for one to get started.

Our day will arrive — and I want to be on board the biggest shake-out in history. There are thousands of points at stake – and I patiently await my signal to position short equities.

Oh, and if you want to see something truly awesome, take a look at the global debt clock and stare for a few moments at your own nations debt ratchet up. It is a true horror show.

T-BONDS

Amazingly, Treasuries have been bid up on the back of sky-high bullish sentiment. DSI readings have been pushing 90% bulls last week. It is amazing to see both equities and bonds at record high bullishness together. With this degree of bullishness, the scene is set for a huge collapse.

Evidently, the bullish narrative of low inflation, declining Treasury issuance due to improved public financing needs, and lack of fear over Fed tapering have trumped the still swelling US national debt and the determination of the Fed to extricate itself from the huge pile of assets it has accumulated (a fire sale anyone?).

The September T-Bond reached one of my targets at the 138 level last week where I took profits on my long trade:

The warning sign was the big neg mom div. My best guess from here is that we are in an A-B-C and once completed, the market will stage a rally again, but that will be last hurrah and the market will then fall very fast with yields rising quickly.

When stocks begin their collapse phase, Treasuries will follow (it may even lead the charge lower).

EURO

Has reached a target and is bouncing off the 1.36 level:

I have drawn in the Fibs and the rally could carry to one of these before being turned back. I am not sure whether it will even make it to the 23% level. If it doesn’t, then expect to see big declines towards the 1.34 area.

I remain short.

GOLD

Nice breakout from my triangle last week and has reached my first target area:

This was on my lower tramline where there is a pos mom div brewing, so caution is advised.

Sentiment remains bearish, but not manically so – DSI reads around the 20% bulls level, so there is possibly more room to take out more of the bulls that got so excited recently. But now, I am reading much more bearish articles, so the end of the decline is nigh.

My best guess is that there is one more down move before a huge rally gets under way.

I took partial profits at the $1240 area last week on my shorts. My medium-term plan is to cover all shorts if I see one more dip and then look to position long, especially if I see a tell-tale key reversal.

ALCOA

This is my Trade for 2104 in the Equity Division, remember. It has been trading in a lovely channel between my tramlines on the daily:

But now, momentum is waning and it would take a fast move towards the $14 – $15 area to keep the rally alive.

A break of the lower line would be my signal to exit at least some of my long position.

When the Dow finally breaks, I cannot imagine Alcoa will not be swept up in the rout, so this may be it for the rally. But I remain long for now.

IBM

Here is a bonus trade – and in an individual equity, so I am going off piste here. It is in International Business Machines (NYSE). But the chart is very compelling: