Hear my talk at MoneyWeek Conference June 11
ANNOUNCEMENTS
On Friday June 12, I shall be speaking at the MoneyWeek Conference in London and my topic is “How I make profits in today’s volatile markets”. I hope to see some of my readers there.
Also, my new website is almost ready for launch which I hope will be next week, but possibly the week following. Last minute glitches are common when dealing with such a complicated beast, so look out for my new look when it arrives. With the launch, I will often post mid-week in addition to my usual Weekly Wraps.
Don’t forget, you can follow me on Twitter (@ftstrader).
Market Commentary
Stocks continue to struggle. Yesterday’s action is noteworthy. US Employment data for May was released with a jump in new non-farm jobs while the Unemployment Rate edged up to 5.5%. Yeah, I know. The participation rate edged up which helps explain that one.
But that was bullish for the US economy, surely? And stocks fell. For years, bad was good. Have we suddenly switched into a good is bad scenario?
So suddenly, bonds have grabbed the MSM headlines, leaving shares in the shade. You know when that happens, whatever trend has prevailed, that trend is getting ready to reverse. There have been many gloom and doom scenarios painted in the MSM recently, highlighting the sudden shift in sentiment to bearish.
The fact is, the dollar received a boost and bonds tanked on the report. But that suits me just fine (see later). With the sharp plunge in bonds, which we took full advantage of, sentiment has shifted heavily bearish in recent days.
Here is the latest COT for the 10-yr Treasuries:
Both hedgies and retail trader have been net short and positioned correctly for the decline. But last Tuesday, they diverged in their behaviour (not for the first time!). While the hedgies lifted more shorts than liquidated longs, retail traders did the opposite – as they liquidated fully 16% of their longs that week. That is the polar opposite of a short squeeze!
But this data tells me there is little more downside pressure near-term.
But there are ominous signs of trouble ahead in the manically over-loved junk bond market. This market is a haven for thrill-seekers as investors chase yield out to the very fringes of sanity (and beyond). I have mentioned before that many of these high-yield bonds are built on little more than a touching faith in the maxed-out US consumer to maintain their payments on 10-year car loans on over-priced autos.
Here is latest chart of a major junk fund:
This is a very sick looking puppy. Momentum is collapsing and the 50-day MA has been broken. We should see one more bounce off the 200-day MA, but that should be it.
I take this chart as a measure of bullish sentiment towards shares, where the indexes last week have been following the junk.
FTSE 100
This has been one of the weakest indexes in recent days:
My wedge line has been decisively broken and market is heading for the danger zone. Once again, there was a decided loss of momentum in the bull at the recent highs. When this baby collapses, it will be a wonder to behold.
But first, we could see a slight bounce next week as the market tries to plant a kiss on my line before peeling away. But if not, it will be straight down.
The euphoria greeting its climb above the ‘magic’ 7,000 level in March is being replaced with a more sober assessment.
S&P 500
This major index is also just holding above support:
This is one heck of a huge topping process – and a trading nightmare for we swing traders. That is why I have been largely out of the market in recent weeks.
But my wedge line is in mortal danger of breaking very soon – it was tested on Friday again. Once more, we have a severe loss in momentum (a familiar theme, is it not?) and if the market can move down to the danger zone, all hell will break loose – and no amount of algo Buy button pushing will be able to stop it.
So maybe the FIFA scandal I covered last week will turn out to be the mark of the top.
APPLE
This is the bellwether tech share I follow and here is an interesting chart:
This market is also showing weakening momentum and I have a very clear line of support on the daily. If this line is broken, that would spell the top to the high-flying Nasdaq (and all other US indexes). Watch this space.
EURO
It has been a dream to trade! I have outlined many of them in my MoneyWeek Trader emails. In fact, with yesterday’s plunge following the Employment report, I wrote that a sensible strategy was to exit long trades on a stop just below the market. That netted another 250 pips. Here is the very interesting hourly:
I have a lovely five up to Thursday’s high and yesterday a three down which overshot the Fibonacci 50% support. I am looking for a move back up early next week, possibly from the 62% level. But with that five up, we have a bull trend working and I shall be looking to establish long trades again following the 500 pip profit last time.
Latest COT data shows the specs still very heavily net short, so the potential for more dollar weakness is high.
T-BONDS (30-yr)
We are having a superb campaign while yield has rocketed by almost 30% since April (from 2.44% to the current 3.1%). That doesn’t seem much change, but when yields are this low, even a small change means big moves in price – and that is what I like to see!
I have a good tramline pair working and if my EWs are correct, we should see an upward break of upper tramline soon. Sentiment has turned very bearish as traders see the decline as confirmation the Bond Bubble has popped.
Not so fast! When I see articles proclaiming the bubble has burst, I just know to get ready for a counter-trend move. That is why VIP Club members took partial profits at the 149 level on Thursday. Also, the large pos mom div should herald a more protracted rally before wave 4 tops out.
Next week should be very volatile.
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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:
Long EUR/USD – profit 490 pips
Long EUR/GBP – profit 200 pips
Short Sept T-Bonds – profit 440 pips
Short Dow – profit 150 pips
We remain long USD/JPY and USD/CAD
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!
