At the end of another week, the charts of financial markets are still giving us a mixed picture.
I will start again with our XJO – once more it stayed beautifully in the outline I had suggested some weeks ago. Is this going to prove to be a head and shoulders top? Looking dangerously like it is.
Interesting that this past week rates moved higher in the US. As we can see from the chart of the ten-year Treasury yield, we are getting back up into the area that caused so much angst just a few months ago. Five up-days so due for a correction so it will be very interesting to see what it does next.
The US dollar is very important to every market, but it is still not giving what I think is a clear picture. So… I thought we should follow the crosses a bit more closely and hopefully get an early signal there. The Swiss Franc, I think, looks the most encouraging at the moment. Might be worth watching this as if the Swissy can break the downtrend on this chart, I think it would herald an end to the uptrend in the US dollar.
And now for something else a bit different. Still no clear signals on precious metals so this week I am including the chart of DUST – which is a two times bearish ETF of gold. Here an uptrend is bearish for gold and a downtrend is bullish. As we can see, this ETF has been in a lovely channel for the past few months. It picked up the bottom line in Friday’s trading and then closed near its high of the day. It has already had five down days so I suspect it will have to have a bounce but if it can then eventually break that uptrend, it would be a very positive signal for gold.
The market in cotton has had sudden huge coverage in recent days when the price ran up – a few weeks ago, no one was interested in cotton. Quite reminiscent of the flurry we had a few months back in the lumber market which ended up giving a number of traders a quick, painful lesson in “limit down days”. Cotton is probably going to give a similar schooling. I mentioned last week that oats was in a lovely uptrend and brought out an old market saying that “oats knows”. Don’t know what it knows but it certainly is trending nicely – higher that is. I suspect it might be giving us a strong hint on what the other grains might be going to do – remember grains equals food which equals inflation. I also like the look of some of the softs – cocoa, coffee, and sugar. If the traders want to take them for a spin, it would be easy enough to break them topside. Sugar has a long history of being able to have massive moves – both up and down.
Looking around some of the other commodities, the distant months in Steaming Coal were weaker with the near months higher. Studying the structure of futures markets can give some early signals.
LME metals ended the week on a better note. Zinc started to look a bit interesting. It has been going sideways for months. Also, interesting to note that the LME stocks for zinc have been falling nicely.
I raised the question a couple of weeks ago as to whether people thought we were headed for inflation, deflation, or stagflation. I think the odds of stagflation are growing.
In recent years, we have seen the move to “just in time” ordering of stocks and commodities. This has not proved a very good idea now that we have such bottlenecks in so many areas.
Hopefully by the end of this week we will have a clearer picture as to the longer-term trend of many markets. I want to show a chart that is giving a bit more of an encouraging picture - the NASDAQ Comp. I highlighted this chart during the week when it had a perfect pullback to the support line. If the markets are going higher, I think it is up to this chart to show us the way. I should also mention that I am always very aware of sentiment around the markets, and it is still negative. Also, not happy that the potential head and shoulders tops that are showing up in many places are now being given quite a bit of attention. That sort of thing always worries me. I have nominated this correction in the NASDAQ an A B C correction. If that is what the market is currently doing, it gives an upside target on the NASDAQ of 16,000.
My phone met a sticky end during the week so had to resort to the bottom drawer job. Camera isn’t as good.
(20min delay)