The equity markets continue to frustrate both bulls and bears with new highs made without follow-through or conviction, deteriorating momentum but an unwavering belief in the Fed’s printing process. The Fed’s recent decision to continue QE unabated is a game changer IMHO. They have opened the door for a collapse in confidence in the US$ and asset markets generally with their double-speak of taper / no taper. Bernanke’s unfettered money printing is creating global market distortions with low interest rates around the world forcing increased speculation on non-productive assets such as housing. A world of excess debt and zero final demand growth is a dangerous combination when productive capacity and outstanding debt is not reset. To believe in a world where we can continue to keep interest rates artificially low by printing more money to allow government’s profligate spending to maintain the staus quo is fraught with danger. What are the markets telling us? Last week the US$ continued its decline, global equity markets drifted lower following new all-time-highs, commodities and PM’s were lower and bond yields declined around the world.
Is the Fed printing because it sees slow global growth for longer? If that was the case, global bond yields would have been declining, not rising prior to the Fed’s decision ( the recent US government shutdown speculation is just noise and misdirection). Why were yields rising when commodities and PM’s were declining? Bond prices reflect interest rate risk and credit risk… which one of these is the Fed trying to mitigate? I can only surmise that the Fed is caught in a no-win situation, it must continue to print $ to maintain artificially low interest rates to support an over-indebted government while creating the world’s biggest bubble in non-productive assets… this time is no different and it WILL end badly.
To the charts…
The following is the best read I have on the US equity markets. This overlapping rise warns of a potential ending diagonal to this equity market rally. While the high may be in already, there remains no evidence as yet that this is the case. The wedge forming between the pink and green trend lines is my guide for the intermediate term. One more push higher to the 1750 level would be an ideal scenario for a potential top but I will only be trading short term around these support and resistance levels for now.
Below is a potential near term path forward for the SPX to complete the wave 4 decline into the 1660-65 range where (c) = (a)
Last week I highlighted the potential end to the ASX200’s 4 year counter-trend rally. The door is still open for a marginal new high, but the risk is clearly to the downside in my opinion.
Near term the ASX200 would “look” more complete with a final 5th wave higher as I am skeptical of the 3 wave advance into the highs for (v). I am more inclined to see this as an expanded flat wave (iv) with wave (v) to come. Trade below 5150 would invalidate this 4th wave decline and suggest a larger decline has already begun.
The rally in the EUR/USD still looks incomplete and I would expect a push towards 1.3600 before a potential reversal could take place. I remain near term bearish the US$.
The GBP/USD continues to rise as expected but is now approaching significant resistance. I am on the lookout for potential shorting opportunities here as this advance nears completion at the top of this 4 year contracting triangle. A clear 5 wave decline on an intraday basis would be the first indication that a potential change in trend had occurred.
The near term GBP/USD count suggests that this 5th wave may already be a complete ending diagonal on the 15m chart. This count is wrong above 1.6200
The near term rally in the USD/JPY never eventuated last week as wave E extended lower. We need to see a clear 5 wave impulsive rise off the lows to enter the long side of this trade. The overlapping nature of the wave E decline suggests it will be fully retraced in wave circle 5 to new highs.
Gold and Silver’s inability to rally in the face of a weakening US$ is troublesome for the precious metals bulls. While there is no clear count here, gold looks like it wants to head lower in the near term. The rise from the 1182 lows counts best as an a-b-c corrective zigzag with a potential H&S forming on the backtest of the green channel break. Trade below 1270 will “lock-in” the 3 wave advance and lead to new lows on gold.
That’s all I have for now. Trade safe 🙂