Market Report: Summer Trading Gone Crazy
The past 4 weeks we have seen some very confused markets that any self respecting technician should be confused about.
Back when the risk markets were falling into the June lows, the call to look for a major turn and a reversal was a very easy call and worked out well, and we had a target of 1360SPX. That was based off the US$ aka DX making a 5 wave advance from the May 1st lows into the June 4th highs. It was a high odds trade that if the US$ reversed we would see risk markets such as US stocks and risk currencies move higher.
That was the easy part of expecting a reversal to correct the advance. If you note the date you will note that the risk markets (including US stock markets ) reversed at the same time the US$.
If we fast forward, and look at what has happened since that period. We can see that up until the June 21st area things were working normally, the risk markets such as ES and AUDUSD were pushing higher as expected, and the US$ and bonds were pushing lower, so risk reversal trade was normal, as money flows out of safety markets such as USDCHF, USDCAD and ZB (30yr bonds), it goes into cheap markets like risk currencies such as AUDUSD, NZDUSD, US stocks and European stocks etc, that's what happened at the June lows.
We found the end to a 5 wave move in the US stock markets, EURUSD, 6C, Copper, and many other markets. As well as seeing a 5 wave advance in the DX.
Nothing abnormal, we simply switched between assets in what is referred to as risk on/off which I am sure readers had heard.
Now where it gets ugly, messy and confusing is what has happened since the June 21st period. You will note that we have seen the DX move higher as well as ZB aka 30yr bonds, but now we have seen AUDUSD and ES push higher, you can overlay 6C (CADUSD) & NZDUSD it's the same, we are seeing risk assets markets rally with the safety markets.
I use the ES e-mini as a barometer for the US stock markets and AUDUSD for risk currencies.
It's pretty blatant that at the same point in June lows the ES and AUSUSD were considerably lower, yet we are at the same areas on the DX and ZB yet we are seeing the ES and AUDUSD continue higher.
So we have one section of the markets that are clearly wrong. We should be back towards the June lows in the AUDUSD and ES, yet here we are virtually at the highest point since the highs made this year.
We have a safety bid and a risk on bid going on at the same time.
Where I see possible trouble arising for the bears in risk, is that if the US$ reverses and bonds follow, and if the safety bid is reversed, like we saw at the June lows.
Does that see new $$$ move into the risk currencies such as AUDUSD, 6C and NZDUSD? Or even buy US and European stocks.
So there is a large arbitrage going on and I suspect the traders that can exploit this large divergence will be on to a decent $$ trade.
Stay tuned it should be a great trade if you can find the markets that are wrong.
A few weeks back I wrote a midweek report explaining the 2 ideas that were following, at the time it was pretty much a 50-50 choice of ideas, but it came to key resistance holding or giving way to the alternative idea of seeing 1380SPX.
Well fast forward and we have hit our secondary target and Friday revealed a potential reversal in the risk markets we track, although it was a mere fraction away for confirming the reversal, but seeing the evidence of the other markets such as the DAX and Copper, there is a highs odds setup that the move from the June lows is over, and we are going to treat as such unless it reverses Fridays decline.
So last week's high now key resistance going forward. Although the bounce was expected as I penciled in a target of 1360SPX back in the middle of June. Its took more time than I originally thought, but I still maintain that the probabilities favor that the move from the June lows is a corrective advance and should be completely retraced once its finally finished.
So looking ahead, providing last week's high holds I am looking for a move lower back under the June lows as a minimum target but ideally 1250-1220SPX.
In that same report I also showed an idea we are working in with Gold and it looks like it could be setting up a strong break lower.
The last few weeks I suspect have been tracing out a triangle and we should near the end of the pattern.
The issue with a sideway trend is that it chops up traders and summer trading with thin volumes exacerbates the issue even more as we have simply gone nowhere for the past 4-6 weeks, hence the sideways triangle.
If I am correct with my interpretation then I suspect it should be setting up for a move lower and hitting our long term targets. (Long term charts reserved for members only).
You can see the same setup on Silver, and as long as it remains under key resistance then the pattern should push lower.
So it appears that the markets are suggesting lower, now like all ideas there is always an element of risk, and it would be stupid of me to suggest that if the FED actually does another round of QE, that Silver and Gold would not react, as I am positive they would react, but just like the last time betting on the FED doing something before they do it is a sure way to the poor house.
boning is a powerful trick from the FED and it seems precious metals bulls fall for it all the time.
hy we follow price, not some rumor or jaw boning from some FED official or some stooge from the wall street journal.
Price rules and that is all we need to follow.
If you are looking to trade the ideas mentioned in this article or the other markets we follow then sign up and become a member of a group that is interested in staying on the right side of the tape.
Until next time,
Have profitable week ahead.