If I ever hear the word “transitory” again in relation to economic matters, I think there is a good chance..…
Ten-year yields. Yes, it was very “transitory” wasn’t it. The uptrend formed over the past two months is absolutely amazing. Interestingly, it shot out the top of the return line on Friday before weakening off and actually closed almost on the low of the day – that action may hint at a high for now. We need to see if it can break that uptrend – wouldn’t take much.
And of course the US dollar. Here again another fabulous uptrend. Note the move on Friday out the top of one channel and almost touching the next upper level as well. If the previous chart of ten- year yields break its uptrend, I think we sill see the action mirrored here.
Showing a different picture of the dollar – this week I am again including the chart of the yuan against the dollar. Just look at the two major legs down the yuan has had. Certainly looks to be getting a bit overdone.
One is scrambling to try and find much to keep the fire alight on Wall Street this week after heavy falls on Friday. However, sentiment measures are all registering extreme bearishness from investors. For a start put buying was at a record last week. This is important. Volume overall was very high suggesting people that are bearish are selling. (For people not all that familiar with how sentiment works, extreme negativity is usually associated with, at a minimum, short term lows). Putting up the weekly chart of the Russell 2000 once again this week. Bit of a sad picture as it is once more back to its support level. Wouldn’t like to see it go much lower otherwise the battle to head north again would be difficult unless it had time to form another base pattern. We should get a better idea of what is happening in the next couple of days. Already had four down days.
And another interesting chart in relation to Wall Street – the VIX. Keep in mind that I plot this with the scale inverted so that it moves in the same direction as the market. During recent weakness in the indices, the VIX held in the band I have on this chart before the sell-off in shares on Friday. I think the VIX got to that 30 level rather grudgingly and really isn’t matching the extreme bearish sentiment around markets. I still think this chart is giving us a message that isn’t horribly negative.
I have included the weekly chart of London recently showing the massive overhead resistance this index has. At the moment it looks like it is going to take the easy way out and fall out the bottom of the pattern. This overhead resistance goes back to the 2008 high and over these intervening years, this market has repeatedly tried to break topside but on each occasion has failed miserably. Certainly not looking strong here. Even if markets rally here, I think I would prefer to leave this one alone.
And the Dax. I know some people will say they have their own special problems. But the point I have made a number of times is that when it comes to looking at markets, there is one big pot of money which is always moving. Plus the fact that there is usually one overall trend with markets moving in one direction with some underperforming and some being more popular with investors. Sadly looks like the Dax was close to throwing in the towel on Friday. Let’s hope they have a PPT – Plunge Protection Team. Looks like they will need it.
The strength of the US dollar played havoc across the commodity scene. Looking at the chart of DUST the two times bearish of gold shares, we see that it has continued to break higher but as with the dollar, close to the return line of a very wide channel. Commodities are going to struggle until we can see charts like this break down. The waiting is becoming very difficult.
Our holiday shortened week left our markets a bit vulnerable on Friday as prices came off sharply. This week I want to include the weekly chart of XMD – Midcaps. This has been one of the best performing sectors in our market over recent years. Still trading close to all time highs but as we can see, we have already come back to the first line of support. The next line (a long-term trendline) comes through around 8000. Would not like to see that broken.
As mentioned above, sentiment readings are showing extreme fear which should give us a bounce later this week.
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