Showing posts with label DJIA | SP 500 | USDX. Show all posts
Showing posts with label DJIA | SP 500 | USDX. Show all posts
Monday, June 29, 2009
Saturday, June 6, 2009
Tuesday, May 5, 2009
Saturday, April 25, 2009
Monday, March 2, 2009
Intermarket Analysis
The US and other western markets are already down substantially from November lows. S&P 500 has fallen steeply and looks set to make new lows today. The Giant double top formation in S&P 500 on a monthly graph doesn’t augur well for stocks in the long term unless it trades above 850 for months.
As USD index edges up through the level of 89 there is strong wave of selling in various markets. Most of the stock market around the world has traded deep in the red today. As mentioned in the last article that gold forms its tops in the first quarter of a year, it is beginning to look that gold might actually be forming a short term top.
To come to a conclusion on any one market thorough different market signals we would need confirmation. The ‘safe haven’ bid which has been in the headlines for most part of the last six months is waning. The USD has risen in spite of a fall in the US bonds and a fall in the safe haven gold. If USD keeps its head above 89.25 on a closing basis this week, we would see a rather strong leg down in all the asset classes in the world other than bonds.
For this to happen we would need evidence that inflationary expectation is weak and is getting worse.
Take a look at the ratio of CRB commodity index to the US 30 yr bond prices.
In the previous market correction of 2000, this ratio declined to 1.4823 which is the low for the last 50 years. A rising ratio indicates the relative strength of commodity prices to bond yields. A rising ratio indicates a rise in inflation and is generally a leading indicator of inflation. Using this as a proxy for inflation expectation, there is little reason to expect that deflationary threat is waning.
Commodity prices generally lead CPI changes by a very small margin
This indicates that commodity prices can continue to remain soft for time to come and bonds are expected to do relatively well over the next few quarters. If we go back in history, the deflationary expectations usually run for 6 to 8 years. Since the fall in commodity prices is very steep we can see bouts of recovery and some volatility in the above ratio.
If the inflation expectation is very weak and markets are still factoring in strong deflationary trend then the underlying strength in the precious metal markets is nothing but a psychological euphoric buying for ‘safety’. As and when market participants start to see value in other asset classes such as equities, there would be a flight out of precious metals to equities.
In the last two articles I have repeatedly mentioned that US stocks might form a cyclical bottom in the next two to three months (may be as early as end of March). This would trigger a strong leg down for gold.
Meanwhile, the downward strength in the US markets is still unabated. Equities continue to remain a ‘sell’ unless the trend reverses i.e. the trend remains down unless proven otherwise.
Currency Markets
USD Index
USD index has broken to the upside. 89.25 is the level to watch for this week’s close. This would lead to USD index testing levels of 93 and 95 in the short term. It is important to mention here that USD is in a long term bear market and this multi year correction rally would take a lot of time to run its course.
EUR, JPY, GBP and all Asian currencies are trading lower against the USD for the last few weeks are the trend is now accelerating in some currency markets. USD index remains bullish on a short to medium term basis and will continue to remain a huge negative for Asian equity markets. Especially for a country like ours which has a huge energy import bill.
US stock market
US stocks are falling without any respite and the last few downticks have been on large volumes. This means that market remains poised to test further lows before starting to recover.
S&P 500 index would see a very strong support at 685 and 640 levels. It would be adventurous to add here that 640 – 685 might be a cyclical low for S&P 500 for a subsequent rally to 800 levels.
US Bond markets
US 30 yr Govt Bond
The US 30 yr Govt bond has broken down from the given levels in the last article. This strengthens the view that bonds made a top in December 2008. US bonds remain bearish in the short term and its long term picture is now starting to change.
Commodity Market
CRB index
Commodity prices have been rather sideways in the last few weeks. There was a strong rebound in the energy prices which led to a recovery last week. Commodity prices remain in a strong bear trend.
As mentioned in the previous updates and other view, S&P bank index is now outperforming the S&P 500. This is a telling sign that we are nearing some important support levels in US stock market.
The Amex Broker’s index has also held up relatively well and shows that market bottom signals are now emerging in the US markets.
The major theme emerging from this market scenario is that deflation threat is still strong but US bonds have started to indicate that markets are beginning to factor in some economic growth. However this has not been reflected into the commodity markets. In the short term, continue to look for weakness in the US equity markets and major commodity markets. S&P 500 would face strong support at 685 and then at 640.
Asian equity markets might break lower due to a stronger USD. Indian markets might face strong selling pressure due to intense INR weakness.
As USD index edges up through the level of 89 there is strong wave of selling in various markets. Most of the stock market around the world has traded deep in the red today. As mentioned in the last article that gold forms its tops in the first quarter of a year, it is beginning to look that gold might actually be forming a short term top.
To come to a conclusion on any one market thorough different market signals we would need confirmation. The ‘safe haven’ bid which has been in the headlines for most part of the last six months is waning. The USD has risen in spite of a fall in the US bonds and a fall in the safe haven gold. If USD keeps its head above 89.25 on a closing basis this week, we would see a rather strong leg down in all the asset classes in the world other than bonds.
For this to happen we would need evidence that inflationary expectation is weak and is getting worse.
Take a look at the ratio of CRB commodity index to the US 30 yr bond prices.
In the previous market correction of 2000, this ratio declined to 1.4823 which is the low for the last 50 years. A rising ratio indicates the relative strength of commodity prices to bond yields. A rising ratio indicates a rise in inflation and is generally a leading indicator of inflation. Using this as a proxy for inflation expectation, there is little reason to expect that deflationary threat is waning.
Commodity prices generally lead CPI changes by a very small margin
This indicates that commodity prices can continue to remain soft for time to come and bonds are expected to do relatively well over the next few quarters. If we go back in history, the deflationary expectations usually run for 6 to 8 years. Since the fall in commodity prices is very steep we can see bouts of recovery and some volatility in the above ratio.
If the inflation expectation is very weak and markets are still factoring in strong deflationary trend then the underlying strength in the precious metal markets is nothing but a psychological euphoric buying for ‘safety’. As and when market participants start to see value in other asset classes such as equities, there would be a flight out of precious metals to equities.
In the last two articles I have repeatedly mentioned that US stocks might form a cyclical bottom in the next two to three months (may be as early as end of March). This would trigger a strong leg down for gold.
Meanwhile, the downward strength in the US markets is still unabated. Equities continue to remain a ‘sell’ unless the trend reverses i.e. the trend remains down unless proven otherwise.
Currency Markets
USD Index
USD index has broken to the upside. 89.25 is the level to watch for this week’s close. This would lead to USD index testing levels of 93 and 95 in the short term. It is important to mention here that USD is in a long term bear market and this multi year correction rally would take a lot of time to run its course.
EUR, JPY, GBP and all Asian currencies are trading lower against the USD for the last few weeks are the trend is now accelerating in some currency markets. USD index remains bullish on a short to medium term basis and will continue to remain a huge negative for Asian equity markets. Especially for a country like ours which has a huge energy import bill.
US stock market
US stocks are falling without any respite and the last few downticks have been on large volumes. This means that market remains poised to test further lows before starting to recover.
S&P 500 index would see a very strong support at 685 and 640 levels. It would be adventurous to add here that 640 – 685 might be a cyclical low for S&P 500 for a subsequent rally to 800 levels.
US Bond markets
US 30 yr Govt Bond
The US 30 yr Govt bond has broken down from the given levels in the last article. This strengthens the view that bonds made a top in December 2008. US bonds remain bearish in the short term and its long term picture is now starting to change.
Commodity Market
CRB index
Commodity prices have been rather sideways in the last few weeks. There was a strong rebound in the energy prices which led to a recovery last week. Commodity prices remain in a strong bear trend.
As mentioned in the previous updates and other view, S&P bank index is now outperforming the S&P 500. This is a telling sign that we are nearing some important support levels in US stock market.
The Amex Broker’s index has also held up relatively well and shows that market bottom signals are now emerging in the US markets.
The major theme emerging from this market scenario is that deflation threat is still strong but US bonds have started to indicate that markets are beginning to factor in some economic growth. However this has not been reflected into the commodity markets. In the short term, continue to look for weakness in the US equity markets and major commodity markets. S&P 500 would face strong support at 685 and then at 640.
Asian equity markets might break lower due to a stronger USD. Indian markets might face strong selling pressure due to intense INR weakness.
Tuesday, February 24, 2009
Intermarket Analysis
The last one week has been eventful for the western equity markets. In the last article it was mentioned that there are four major trends emerging.
Long term US bonds have formed a top in the last quarter of the calendar year 2008. Commodity market are now in a major bear market which will last for many years including sharp bear markets upside rallies. USD will continue to strengthen, not on risk aversion though. Equity markets may bottom out by H209.
The equity markets declined sharply in the western world and have made new lows. Emerging markets have remained quite resilient and are far from their lows made in November 2008. Accelerating deterioration in the world banking industry may lead all markets lower in the very short term. Intermarket analysis shows that the current downtrend in equity markets is decelerating but is not reflected in the equity market averages. Momentum studies are oversold but the trend remains to the downside. Equity markets remain a sell as the trend remains down, unless proven otherwise. But caution should be exercised as diverging signals are emerging from bond markets and currency markets.
Gold prices have performed quite strongly in comparison to all other asset classes. Gold has continued to move up even with USD holding onto its strength.
Risk aversion sentiment has worked well in favour of gold prices. The USD has seen lot of inflows as it is the least unattractive of the collection of ugly sisters that populate the world’s major currency markets. Gold has a tendency to give trend reversal in the first quarter of a calendar year. This is quite evident from major market bottoms and top that has been formed over the years. The only thing that can work in favour of gold prices now is the continued selling in world equity markets and deteriorating condition of the world currency markets. Taking a cue from the strength in gold prices it can be inferred that market sentiment in equity markets has touched lows which have not been seen in the last ten years.
Dow Jones:Gold (Dow Gold Ratio)
Equity markets rally in 1999 made Dow Jones most expensive as priced in gold terms. Currently this ratio is off 3 points from its long term average of 10. This means equity prices are getting cheaper in real money terms. This also means as and when stock prices make a cyclical bottom a lot of money will flow out of gold and into equity markets. The first quarter is just the time that it can happen as bullish sentiment in gold scales new peaks and bearish sentiment in stocks makes new troughs.
Now for this to happen, an early indication can be seen from a rebound in banking stocks. If the markets are to rebound, the financials should bottom out first. This would lead to a return to relatively risky securities and lead the gold prices down. This would also mean the USD will strengthen further as faith in the currency markets return to normal.
Continuing with the assumption that US 30 yr govt bonds have started pricing in some growth expectation, US equity markets can well give a sharp upmove after the current selling is over. However there is little evidence of any price reversal in major market averages in the US other than some oversold readings. Some important indicators to be analyzed are the relative performance of market majors.
Johnson and Johnson (JNJ) to S&P 500 ratio
Clearly JNJ to SPX ratio made a high of 0.070 in the bear market of 2000s. The high of this ratio coincided with the bear market low with a lag of 2 months. The stock market did decline by 40% in that bear market and moved up to make new highs. Although the current bear market is much larger in economic deterioration, still the averages would always kick in on a relative basis. There are other sectoral ratios which have gone beyond all previous bear market lows. One such ratio is the relative performance of tech stocks like Qualcomm. In the bull market the major tech stocks like Qualcomm were the first one to make a lower high before the big break came.
2009 bear market non-confirmation
2000 Bull market non-confirmation
http://www.federalreserve.gov/releases/cp/
The current stats from the Federal Reserve show very little activity in the CP market for Financials. Only Non financial with investment rating of the highest quality has seen some takers. This is in contrast to the rebound seen for financial CP markets ahead to the Dow Jones rally to 9000. The credit market for financial and sub investment securities is still inactive and this is clearly weighing on the market sentiment.
Commodity markets have remained relatively flat in the last one week. Industrial metals have seen a lot of selling along with a fall in the agricultural commodities. Grain markets have seen lot of price erosion and are still looking weak. Commodity index looks set to fall further and make new lows.
30 Year US bonds are consolidating and can continue its downtrend on a break below 125. The activity in the bond market is suggesting that a reversal in stock market is imminent. Equity markets have a tendency to lag by two quarters on an average. This gives us and idea that equity prices in US may find a cyclical bottom in the next few months.
Triangle breakdown in S&P 500 has seen rapid price erosion. Though momentum indicators are quite oversold, there is no indication of a reversal and the trend remains ‘down’ unless proven otherwise.
S&P 500 is now trading well below 2002 lows. A giant double top is also forming which shows weakness for equity prices in the long term is it trades below this level for another quarter.
USD index looks strong. Though there has been some short term correction, the trend still remains up. The pivot trend reversal remains 84 for the USD index.
In the current scenario, continue to look for weakness in equity markets across the world. Short term caution is warranted as divergences in market averages are reaching extreme levels. It is important to note that we have conclusively entered the last leg down of the current bear market in emerging market equities and the last leg down for cyclical bottom for western market equities.
Commodity prices will continue to weaken with agricultural prices leading the way down along with industrial metals.
USD looks strong. USD/JPY will give a strong upmove on a daily close above 95. Look for 102 to be tested as market has formed a cyclical bottom.
US 30 Year bond looks set to fall further on a daily close below 125.
Long term US bonds have formed a top in the last quarter of the calendar year 2008. Commodity market are now in a major bear market which will last for many years including sharp bear markets upside rallies. USD will continue to strengthen, not on risk aversion though. Equity markets may bottom out by H209.
The equity markets declined sharply in the western world and have made new lows. Emerging markets have remained quite resilient and are far from their lows made in November 2008. Accelerating deterioration in the world banking industry may lead all markets lower in the very short term. Intermarket analysis shows that the current downtrend in equity markets is decelerating but is not reflected in the equity market averages. Momentum studies are oversold but the trend remains to the downside. Equity markets remain a sell as the trend remains down, unless proven otherwise. But caution should be exercised as diverging signals are emerging from bond markets and currency markets.
Gold prices have performed quite strongly in comparison to all other asset classes. Gold has continued to move up even with USD holding onto its strength.
Risk aversion sentiment has worked well in favour of gold prices. The USD has seen lot of inflows as it is the least unattractive of the collection of ugly sisters that populate the world’s major currency markets. Gold has a tendency to give trend reversal in the first quarter of a calendar year. This is quite evident from major market bottoms and top that has been formed over the years. The only thing that can work in favour of gold prices now is the continued selling in world equity markets and deteriorating condition of the world currency markets. Taking a cue from the strength in gold prices it can be inferred that market sentiment in equity markets has touched lows which have not been seen in the last ten years.
Dow Jones:Gold (Dow Gold Ratio)
Equity markets rally in 1999 made Dow Jones most expensive as priced in gold terms. Currently this ratio is off 3 points from its long term average of 10. This means equity prices are getting cheaper in real money terms. This also means as and when stock prices make a cyclical bottom a lot of money will flow out of gold and into equity markets. The first quarter is just the time that it can happen as bullish sentiment in gold scales new peaks and bearish sentiment in stocks makes new troughs.
Now for this to happen, an early indication can be seen from a rebound in banking stocks. If the markets are to rebound, the financials should bottom out first. This would lead to a return to relatively risky securities and lead the gold prices down. This would also mean the USD will strengthen further as faith in the currency markets return to normal.
Continuing with the assumption that US 30 yr govt bonds have started pricing in some growth expectation, US equity markets can well give a sharp upmove after the current selling is over. However there is little evidence of any price reversal in major market averages in the US other than some oversold readings. Some important indicators to be analyzed are the relative performance of market majors.
Johnson and Johnson (JNJ) to S&P 500 ratio
Clearly JNJ to SPX ratio made a high of 0.070 in the bear market of 2000s. The high of this ratio coincided with the bear market low with a lag of 2 months. The stock market did decline by 40% in that bear market and moved up to make new highs. Although the current bear market is much larger in economic deterioration, still the averages would always kick in on a relative basis. There are other sectoral ratios which have gone beyond all previous bear market lows. One such ratio is the relative performance of tech stocks like Qualcomm. In the bull market the major tech stocks like Qualcomm were the first one to make a lower high before the big break came.
2009 bear market non-confirmation
2000 Bull market non-confirmation
http://www.federalreserve.gov/releases/cp/
The current stats from the Federal Reserve show very little activity in the CP market for Financials. Only Non financial with investment rating of the highest quality has seen some takers. This is in contrast to the rebound seen for financial CP markets ahead to the Dow Jones rally to 9000. The credit market for financial and sub investment securities is still inactive and this is clearly weighing on the market sentiment.
Commodity markets have remained relatively flat in the last one week. Industrial metals have seen a lot of selling along with a fall in the agricultural commodities. Grain markets have seen lot of price erosion and are still looking weak. Commodity index looks set to fall further and make new lows.
30 Year US bonds are consolidating and can continue its downtrend on a break below 125. The activity in the bond market is suggesting that a reversal in stock market is imminent. Equity markets have a tendency to lag by two quarters on an average. This gives us and idea that equity prices in US may find a cyclical bottom in the next few months.
Triangle breakdown in S&P 500 has seen rapid price erosion. Though momentum indicators are quite oversold, there is no indication of a reversal and the trend remains ‘down’ unless proven otherwise.
S&P 500 is now trading well below 2002 lows. A giant double top is also forming which shows weakness for equity prices in the long term is it trades below this level for another quarter.
USD index looks strong. Though there has been some short term correction, the trend still remains up. The pivot trend reversal remains 84 for the USD index.
In the current scenario, continue to look for weakness in equity markets across the world. Short term caution is warranted as divergences in market averages are reaching extreme levels. It is important to note that we have conclusively entered the last leg down of the current bear market in emerging market equities and the last leg down for cyclical bottom for western market equities.Commodity prices will continue to weaken with agricultural prices leading the way down along with industrial metals.
USD looks strong. USD/JPY will give a strong upmove on a daily close above 95. Look for 102 to be tested as market has formed a cyclical bottom.
US 30 Year bond looks set to fall further on a daily close below 125.
Thursday, February 19, 2009
The Dow Fall Begins.....
For all those of my critics who were saying that risk aversion is over and the economic indicators are getting positive, please see the chart above and the Dow Close for Feb 19th 2009.
I had posted and recommended that DOW must close down 7500 level. This now brings us a more thrilling question. What is next? For Bulls, save your guns, as i think the bounce might come, But not now. I fear, though i don;t want, another leg down and in a massive way. Like 200-300 Points decline in a day, so we come near or at 7000 DJI level. That will finally pull out new bulls and harras bears.
Anyways, i will write more over the weekend, with more interesting charts.
Cheeers.....If you can :)
Tuesday, February 17, 2009
Intermarket Analysis
This is the first article of a series that will be presented on intermarket relationship.
In the last 4 months the US stock market has held its range of Dow Jones 7800 – 9200. Present report shows that we may be very near to a break away from this range. The intermarket analysis generally relies on the following markets correlations.
To summarize the correlations -
Stocks and bond prices are positively correlated, bond prices (note: bond prices and not bond yields are mentioned here) lead stocks in both bear and bull markets.
Bond prices and commodity prices are negatively correlated; commodities lead bond prices by a small margin.
USD is inversely correlated to commodities; its leading characteristics have not been very strong.
A rising USD is good for US stocks, but not essentially for other markets like emerging markets in general (domestic currency strength is actually good for other markets barring few exceptions like China).
US Bonds have rallied strongly along with a fall in stock averages. This is not congruent with the intermarket analysis which says bonds should follow stocks. However the missing piece of puzzle is the previously held disinflation expectation and the deflation expectation. The four important markets have given a clear signal that strong deflationary expectation was built into the system. This is clear in hindsight as US bonds rallied along with the USD as a safe haven of last resort and commodity prices declined at a record pace.
In the current market scenario the US Bonds have started their descent which looks quite strong. My basic assumption now is that the US Bonds formed a top in December 2008 and has started a bear trend. This would be confirmed once the US Bonds Futures (USH9 Bloomberg ticker) trades below the 200 DMA on a sustained basis.
Taking the assumption forward that the US bonds have peaked we can come to the conclusion that the deflation expectation in the markets have reduced and the current USD strength is not based on a safe haven bid. Now put historical market developments into the picture.
L.A. Times article dated March 30, 2000, “The red-hot U.S. economy, powered by heavy spending by consumers and the federal government, was roaring ahead at an annual rate of 7.3% in the final three months of 1999, the fastest growth rate in nearly 16 years.” The US economy grew at the fastest pace and the US 30 yr Bond prices were rising at the time. Crude oil traded at a ‘very high’ price of $37 which lead the US President Clinton to tap the SPR. Every trader and investor was bullish at that time as NASDAQ led rally made higher highs even as DJIA had stopped making new highs.
Compare this to the present scenario. US 30 yr Bonds are falling, crude oil prices are near lows, US stocks are making new weekly lows and USD holding its strength. This suggests that the US Bond market is discounting growth. The positive slope of the US yield curve signifies inflation expectation getting back into the system. Commodity prices are generally the last to reverse after a major market trend. However the current bear trend in commodity prices in USD terms is strong and will take years to end. A stronger USD will lead to weaker commodities and stronger US exports.
Does this mean that the current financial crisis has run its course?
It would be very difficult to pin point a time for reversal but intermarket analysis shows that US stock market is in for a period of unsustainably lower prices. In the past, the US stock market has lagged deflation oriented bond market signals by more than 6 months. If the bond markets peaked in December then we are in for a lot of cyclical strength in the US stock markets. This could well mean that bonds may keep falling with stocks remaining in a range or stocks may rise relative to bond prices.
Stock market movements are not guided of this market correlation on a day to day basis. But over a period of time these correlation kick in and give strong cyclical reversal signals.
Currently the strength in the USD has been viewed as a ‘risk aversion’ rally. This has lead to liquidation in all the asset classes. In following graphs will show that USD is on the brink of a major bull market rally. It has gapped up today and can lead to strong rally if it manages to close above 87.65 today.
US 30 Yr bonds are declining and there is little to say unless they start trading above 131.
Commodity indices have made a H&S pattern and a next downtick can lead to lower levels.
US stocks have formed a major continuation pattern, a triangle which will resolve bearishly on an S&P 500 close below 805. Present index level in 825.
In the short term a rally in USD can lead to a strong down-leg for commodity and equity markets. This would be probably the last leg down for most of the Asian markets but just a bear market intermediate low for Western markets. With USD gapping up today there is an expectation that the trend in most markets will resolve in a day or two. In the medium term intermarket analysis is signaling a cyclical bottom in equity markets. But equity markets have a tendency to lag. If USD breakouts of this range, we would see a sell-off which will mark the low. S&P 500 will see support at 640 after 805 and 780 are taken out. This breakdown in US stocks would be against the intermarket analysis but short term lags cannot be predicted as market sentiment leads the market behaviour.
USD Index
US 30 Yr Govt Bond
GS Commodity Index
US stocks - S&P500
In the last 4 months the US stock market has held its range of Dow Jones 7800 – 9200. Present report shows that we may be very near to a break away from this range. The intermarket analysis generally relies on the following markets correlations.
To summarize the correlations -
Stocks and bond prices are positively correlated, bond prices (note: bond prices and not bond yields are mentioned here) lead stocks in both bear and bull markets.
Bond prices and commodity prices are negatively correlated; commodities lead bond prices by a small margin.
USD is inversely correlated to commodities; its leading characteristics have not been very strong.
A rising USD is good for US stocks, but not essentially for other markets like emerging markets in general (domestic currency strength is actually good for other markets barring few exceptions like China).
US Bonds have rallied strongly along with a fall in stock averages. This is not congruent with the intermarket analysis which says bonds should follow stocks. However the missing piece of puzzle is the previously held disinflation expectation and the deflation expectation. The four important markets have given a clear signal that strong deflationary expectation was built into the system. This is clear in hindsight as US bonds rallied along with the USD as a safe haven of last resort and commodity prices declined at a record pace.
In the current market scenario the US Bonds have started their descent which looks quite strong. My basic assumption now is that the US Bonds formed a top in December 2008 and has started a bear trend. This would be confirmed once the US Bonds Futures (USH9 Bloomberg ticker) trades below the 200 DMA on a sustained basis.
Taking the assumption forward that the US bonds have peaked we can come to the conclusion that the deflation expectation in the markets have reduced and the current USD strength is not based on a safe haven bid. Now put historical market developments into the picture.
L.A. Times article dated March 30, 2000, “The red-hot U.S. economy, powered by heavy spending by consumers and the federal government, was roaring ahead at an annual rate of 7.3% in the final three months of 1999, the fastest growth rate in nearly 16 years.” The US economy grew at the fastest pace and the US 30 yr Bond prices were rising at the time. Crude oil traded at a ‘very high’ price of $37 which lead the US President Clinton to tap the SPR. Every trader and investor was bullish at that time as NASDAQ led rally made higher highs even as DJIA had stopped making new highs.
Compare this to the present scenario. US 30 yr Bonds are falling, crude oil prices are near lows, US stocks are making new weekly lows and USD holding its strength. This suggests that the US Bond market is discounting growth. The positive slope of the US yield curve signifies inflation expectation getting back into the system. Commodity prices are generally the last to reverse after a major market trend. However the current bear trend in commodity prices in USD terms is strong and will take years to end. A stronger USD will lead to weaker commodities and stronger US exports.
Does this mean that the current financial crisis has run its course?
It would be very difficult to pin point a time for reversal but intermarket analysis shows that US stock market is in for a period of unsustainably lower prices. In the past, the US stock market has lagged deflation oriented bond market signals by more than 6 months. If the bond markets peaked in December then we are in for a lot of cyclical strength in the US stock markets. This could well mean that bonds may keep falling with stocks remaining in a range or stocks may rise relative to bond prices.
Stock market movements are not guided of this market correlation on a day to day basis. But over a period of time these correlation kick in and give strong cyclical reversal signals.
Currently the strength in the USD has been viewed as a ‘risk aversion’ rally. This has lead to liquidation in all the asset classes. In following graphs will show that USD is on the brink of a major bull market rally. It has gapped up today and can lead to strong rally if it manages to close above 87.65 today.
US 30 Yr bonds are declining and there is little to say unless they start trading above 131.
Commodity indices have made a H&S pattern and a next downtick can lead to lower levels.
US stocks have formed a major continuation pattern, a triangle which will resolve bearishly on an S&P 500 close below 805. Present index level in 825.
In the short term a rally in USD can lead to a strong down-leg for commodity and equity markets. This would be probably the last leg down for most of the Asian markets but just a bear market intermediate low for Western markets. With USD gapping up today there is an expectation that the trend in most markets will resolve in a day or two. In the medium term intermarket analysis is signaling a cyclical bottom in equity markets. But equity markets have a tendency to lag. If USD breakouts of this range, we would see a sell-off which will mark the low. S&P 500 will see support at 640 after 805 and 780 are taken out. This breakdown in US stocks would be against the intermarket analysis but short term lags cannot be predicted as market sentiment leads the market behaviour.
USD Index
US 30 Yr Govt Bond
GS Commodity Index
US stocks - S&P500
Wednesday, February 11, 2009
Back to Dow Jones- An Insight
Hi Guys and Gals (if any).
i am back and this time i am posting a chart i made some days ago. Precisely on Feb 3rd 2009.
It is on a monthly time period and i have basically predicted a big leg down.
I am keeping fundamentals in view as well. and trust me, ignored the Stimulus Plan altogether.
What has to happen, Has to happen. Neither a President nor a Federal Bank can stop it. They can only DELAY it.
Well, i will write more soon.
To my critics, who thought Risk Aversion is over, please see Daily GBP Charts....
regards:
Addy.
Monday, February 9, 2009
S&P 500 Chart - 10 Feb
Hi all,
Im looking for down side for wave 5. Near the end of wave 5, we gonna get good buy setup.
Im looking for down side for wave 5. Near the end of wave 5, we gonna get good buy setup.
Sunday, January 25, 2009
I am not going to post any chart today. This is more of a commentary on what is going to happen in the US Stock market going forward and its impact on the US Dollar. Now i am not going to convince every body that market has bottomed out, the angels are falling from sky to help investors and the Obama is the superman for a nation in debt. Certainly, nothing has changed since Nov 2008. I believe that market is waiting for another leg down. This time, however, its going to be slow and steady downward trend. I see the DJI level of 8000 as medium term bottom/support. The next leg down should cover another 1000 point of DJI. That is expected to happen when the earnings season is fully over, oil drops again to US $ 35 levels, and Obama administration fails to attract Congress.
Now, on FX, as this forum is focused on Forex moves/charts. I am forecasting a one sided view here and not being Technical for a while. Fundamentals suggest that US dollar will be the superhero for the next 6 months as i see Euro to dive to 1.20 or below, GBP down @ 1.20-1.25, CAD 1.35.
This is based on the following. US has already lowered interested rates to near zero. Other are going to follow that soon. By Dec 09, ALL G7 will have zero percent Interest rates. By that time, i believe that the US will start increasing to tighten inflation issues.
The risk aversion continues to dominate.
Euro and GBP loses their charm as safe deposit Assets. I have a feeling if a European nation goes bust, may be the fate of Euro is in doubt and then a dive to parity may be.
More comments to follow soon.
If you like or even dislike, please do comment.
email : azafar78@gmail.com
Now, on FX, as this forum is focused on Forex moves/charts. I am forecasting a one sided view here and not being Technical for a while. Fundamentals suggest that US dollar will be the superhero for the next 6 months as i see Euro to dive to 1.20 or below, GBP down @ 1.20-1.25, CAD 1.35.
This is based on the following. US has already lowered interested rates to near zero. Other are going to follow that soon. By Dec 09, ALL G7 will have zero percent Interest rates. By that time, i believe that the US will start increasing to tighten inflation issues.
The risk aversion continues to dominate.
Euro and GBP loses their charm as safe deposit Assets. I have a feeling if a European nation goes bust, may be the fate of Euro is in doubt and then a dive to parity may be.
More comments to follow soon.
If you like or even dislike, please do comment.
email : azafar78@gmail.com
Cheers, happy trading
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