Weekly Wrap

Another US data set – another stinker.  Yesterday, when US markets were closed for Good Friday, the new jobs report for March came in at half of that ‘expected’ – 126k vs 247k (and the Feb figure was revised down by a hefty 10%).  I call that one heck of a miss.

Of course, it followed many other weak data points in recent weeks, but that didn’t stop stock markets from pushing even higher into bubble land.

The fine details of the bombshell report were also shockingly weak – but I do not like to dwell too much on the news (you can read the details on Bloomberg).  It is the chart patterns and the internals that I focus on.  They tell the real story for traders.

Since at least 2009, bad news has been good for stocks – and we have all been inured to this perverse phenomenon that most are surprised when it fails to work – as it did yesterday.  Before, such a negative report would have been greeted by cries of Buy, Buy, Buy – the Fed has our backs!

Of course, Treasuries zoomed higher on the report as the bond market obviously expects the long-awaited interest rate  rise to be delayed even further.  (Yes, I got that call wrong a few weeks ago, but I did make money on the decline!  Of course, interest rates will rise at some point, but not yet).  That reaction of the bonds should have spurred massive stock buying – instead, the Dow fell 150 pips in the futures.

Could it be that bad news is now bad?

So, has the game changed – is bad news now bad?  And is now good news (if we get any) also bad? That latter mantra makes sense because, by the current market’s rules, good economic news spells an imminent interest rate hike.  And the mammoth stock buy-backs fueled by cheap corporate borrowings will be curtailed at the very least.  These wonders of financial engineering have been the rocket fuel for stocks.

But has the limit of the latter been reached? Is this a Wile E Coyote moment for stocks?  It’s a long way down to the canyon bottom.  And what a fitting metaphor – recall Wile E, suspended in mid-air as he chases Roadrunner, suddenly faces reality that he has run out of gas in his Acme rocket, looks down, plummets and crashes in a cloud of dust.

The dollar zoomed lower on the day with our long euro trades looking even healthier. I sense that the euro bears – which vastly out-number the bulls 6.5 – to – 1 (latest COT data) – expect Greece’s exit to be a done deal and that would weaken the euro.  I happen to continue with my belief that when any of the PIIGS leave the euro, that would strengthen it because the ECB would be free of a drag on the currency.  That was my view years ago when the PIIGS’ problems were first revealed.

Or at least, a Greek exit would adversely impact the euro only when the dollar has sunk deep into a wave of negative sentiment and is trading much lower than today.

Also, the new QE operation by the ECB has not weakened the euro (as I correctly predicted at the time).  In fact, the dollar did not fall when the Fed started its QE schemes, so why would it this time in the euro?  Once again, the ‘obvious’ rationale that was bought hook, line and sinker by the masses was wrong.

The other side of the coin is the state of the dollar. Sentiment, along with a rapid move up to the 100 area, had rocketed up in recent weeks, and this was unsustainable.  I said so when the 100 print was made last month.  I fully expect a deep correction of possibly ten percent to the 90s over the next few weeks.  But long-term, the dollar is a good bet – and will be the only currency standing when Wile E meets his doom.

Weak US economy impact on dollar will come more into focus

And as a test of my stance that the news follows the markets (not the other way around, as so many believe), let me offer a likely scenario or two to unfold into the summer months.

There will be a renewed public concern about the mammoth US national debt (that has gone quiet recently). Congress will be locked in vigorous inaction over it.  Also, US trade deficit will widen because of the previously strong dollar (these things lag). And in the background will be the delay in an interest rate hike in the face of continuing soft economic data.

Skyscrapers are back in the news

Just when I brought up the Skyscraper Index last week, I see in today’s Telegraph an article detailing the entrants in the 2015 eVolo skyscraper design competition.  These are not your run of the mill steel and glass monoliths!  Many are truly whacky and fanciful. Take a look.

The relevance here is that skyscrapers are very much in the news – and have been a traditional indicator of maximum bullishness about the future.  That is precisely the condition for when markets top out.

I also see a few more stern warnings from prominent investors in the MSM.  Normally, I would consider that a contrary indicator.  But, coming after a massive bull run since the 2009 lows, I am discounting this thought.

DOW

Following the short-term moves has been virtually impossible!  That is why I abandoned trying to label the EWs on the hourly chart a while ago.  But the longer-range picture is coming into very clear focus.

Here are my EW labels:

 From the 2 Match top, the first big wave down contains a motive five waves with a pos mom div at the low (that is where VIP Club members took partial profits of around 500 pips).  Then, a deep upward retracement (where have we seen these before??) but not to a new high.  That was my tentative wave 2 – and was where I gave up trying to label the waves!.

Then, another plunge to the area of my wave 1 low (purple) and then an upward thrust in an A-B-C to the high in the purple wave 2.  From there, another plunge of over 400 pips to the support area, followed by a rally (again in three waves) to my small wave 2 high.  And with yesterday’s decline, the market is knocking on the door of the shelf of support in the 17,600 area.

So potentially, we are in three separate third waves down – which will be confirmed by a strong break of the shelf of support.  Will be see that next week?  The odds are high.

If this is the major top which will hold for many years, it is entirely typical of such topping action following years of relentless bull action.  They are rarely smooth and usually exhibit massive churning with large overlapping waves – as here.  There is a massive transfer of wealth going on here – the smart money is leaving the party.

VIP Club members remain short from the 18,030 area.

EUR/USD

Totally against prevailing wisdom, the euro is gaining sharply against the dollar.  This is my EW count on the daily off the 1.40 high last year:

I have an extended fifth wave with a complete five down within.  The sharp rally to the 1.10 area last month was the initial wave 1 and the dip wave 2.  With yesterday’s surge back to the 1.10 area – and a break of my upper tramline – odds are high we are in a third wave up.

If all of my EW analysis is correct, we are at the start of massive third wave moves – down in the Dow and up in the euro and gold (see next week’s WW) – that will last for weeks and perhaps months.

VIP Club members remain long EUR/USD from 1.0660 and 1.0840.  We also went long EUR/GBP last week.

So, if you want to receive my trades in real time as I make them, drop me an email at ttburford@gmail.com and I will send you details of membership in my VIP Traders Club. 

Have a great Easter weekend!