Treasuries are crashing – and we are short!
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Market Commentary
As for the markets, stocks provided little excitement last week in the pre-holiday period. But currencies were a different matter! In yesterday’s MoneyWeek Trader article, I noted that if this week’s rally in the euro couldn’t get some traction soon, then it was curtains. I wrote that early on Friday and later on, the euro was hit hard and fell to new lows for the move. The odds are stacking up that the dollar, which was unloved last week, will now gain more friends and continue its stunning rally.
The previous week saw that US consumer sentiment had plummeted from 96 to last month’s 88 – a shock result, and was backed up by this week’s Bloomberg poor data. But still stocks are behaving as if nothing is going on under the hood (bonnet).
Because social mood drives public markets, then the stock bull is living on borrowed time. If you are interested in socionomics, as this budding social science is called, read here.
And yesterday, Yellen gave another even stronger hint that the Fed will be raising their target rate this year. Of course, we have been tracking the increasing T-Bond yields for some time, and noted that this steepening of the yield curve is a warning to stock bulls that their party will be coming to an end.
But we all know that stock markets can defy gravity for months, an even years. Fed chief Greenspan’s comment about ‘irrational exuberance’ was made several years before the Nasdaq’s eventual top on 1999.
But looking at the internals of the major US markets, they certainly look very very tired. Such measures as advance/decline and new highs/new lows, as well as my momentum readings all tell the same story – the bull market is long in the tooth and could fall of its own weight at any time.
And we have entered the Sell in May and Go Away period! Hmmm.
DOW
It made an all-time high last week and has backed off since then. But here is an interesting hourly picture:
I have a lovely wedge covering the May month and the all-time high was made on a clear overshoot. This is a significant pattern because it often appears just when the market is about to reverse. And with the wedge break, market is headed down – and on a big momentum divergence.
It is too early to categorically say that the downturn has started, but it is an encouraging sign. If market can break the 17,900 level soon, I will have my confirmation.
USD/JPY
Last week I showed the lovely wedge forming on the daily and on the hourly as well. My belief that the bull run will resume has been bolstered by last week’s action, which followed my road map perfectly:
Last week saw the pull-back I was expecting and yesterday, market moved up in wave 5. Remember, I had changed my stance from bearish to bullish and VIP Club members are now long from the 109 area.
This is a lovely motive five up (not yet complete) with wave 4 in a textbook three down (green lines).
VIP Club members are long from the 109 area.
T-BONDS
Following out terrific short trades with profits banked, I am eying up a new trade. Here is the hourly:
The plunge low is my wave 3 and the wedge that is forming is my wave 4. This is a complex wave as is typical for fourth waves. When the lower wedge line breaks, that will confirm market is in wave 5.
Remember, the initial spike up in yields (plunge in price) starting last month took most by surprise. Since it takes a long time for a persistent belief (in forever zero yields) to dissipate, traders should have taken this big decline to add to longs.
And the latest COT data on the 10-yr T-Note (the key instrument which determines many consumer rates) reveals just this. Hedge funds increased longs by over 10% in the latest week!
The move down should be sharp as longs are liquidated.
GOLD
Had a set-back last week but remains on track for the rally.
But if my labels are correct, I need to see a good move up next week in the third wave. A failure would put my labels in jeopardy and the move up off the B wave low could then be an A-B-C – with its bearish implications.
The other aspect to watch is the behaviour of the euro. If the dollar advances strongly next week, that would be a headwind for gold. But if stocks turn down, we should see a flight into the metals. As ever, there are plenty of cross-currents.
We remain long with a tight stop.
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VIP TRADERS CLUB NEWS
See last week’s WW for some of the trades we made the previous week.
Here are the major trades made last week:
Short EUR/USD – profit 280 pips
Long USD/JPY – profit 175 pips
If you would like 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 weekend!
