Sunday, 10 April 2011

Top building process - Copper will lead the way

Clearly at an important point at the moment: Copper. In USD terms as well as against Gold, Copper is at extremely crucial points with regards to the short to medium term. The recent sideways action will result in some kind of larger move either way. 

TMN has been making the case for a major top building process being under way and therefore still favours selling rallies in 'risk'.

Oil and Silver will find a top at some stage, just like they did in Summer of 2008. 

TMN believes firmly that there will be at least a temporary break to endless liquidity provision and markets are starting to look at this now. 

This sobering process is likely to show quickly in the real economy. Purchasing prices are already hurting some it seems.

Volatility has bounced off the 16 area on multiple occasions over the last 2 years and it seems that now it is attempting to gather some steam for a significant advance into summer.

Sunday, 27 February 2011

The easy money tide is about to turn!

As everyone who has not suffered brain damage will understand, stock markets, for the last 2 years, have been fuelled exclusively by the availability of cheap money. The tide is about to turn. It is a process and it will not happen over night. The markets however will be anticipating the action in advance. TMN has called for a pause in the decline of the bond market a few weeks ago and we have seen a decent bounce since then. In order to achieve a breakout on the top USH1 needs to rise above 122-09. 

As per TMN's last post a couple of weeks ago, "risk" is topping out and especially TRAN has not been looking good lately. In fact, the TRAN are very close to a bearish monthly key reversal.

The USD saw some pressure last week but recovered on Friday. On the weekly charts it is pretty clear that major support is coming in now. TMN is confident that it will hold and bounce off there. 81.44 remains the key level that will turn the USD view of most participants upside down once it trades.

And finally one of the most important big picture charts TMN can think of:

Saturday, 12 February 2011

Bonds will take a decision here - "Risk" topping out

TMN has called for a decline in Bonds a while ago and gradually lightened up on the position. Every time the equity market has been as annoying TMN the most bonds seemed to feel the pain and started/kept dropping. We have been through some kind of consolidation now since December and lately bonds decided to break below the recent range albeit not by much. In yield terms this has led to a touch on the down trend line from some years back. It happens to be just at the 50% fib level between the 2007 top and the 2008 bottom. 

Obviously a decision is coming up shortly. What is likely to happen? Hard to say. The bond market is the lifeblood of all bailout policies. 

Easy money's unintended consequences are making their way into politics now, as events in  Tunisia, Egypt, Algeria, Yemen, Jordan, Syria and Pakistan impressively show. In a way it is a H1 2008 replay, as inflation fears at the time were also widespread. If TMN is not mistaken it was all to go the other way shortly after the inflation scare:

Bonds are threatening to put an end to a 20+ year bull market, commodity prices, especially soft commodities are threatening to hit vulnerable nations, this makes TMN wonder how much longer western politicians will let this bailout brain damage go on?! Precious metals, widely recognized as a good hedge against inflation, have stopped their advance a few weeks ago. Gold, in fact, looks a bit damaged unless it trades up and above 1394 soon again. The Gold/Silver ratio however has been dropping ever since QE2 talk started relentlessly. Should it reverse, the top in "risk" will be nigh. Silver has started showing some cracks recently, too:

It's all about easy money in the end and it might just come to and end... Be sure the markets will let us know!

Sunday, 30 January 2011

Cross roads across markets

Generally speaking the market has been lining itself up at a cross roads and this applies for most asset classes. It is still the same old story between USD vs anything else. TMN has been leaning towards the side of the USD in the medium term and gold for the long term whereby it has been difficult to be long USD over the past two weeks. TMN however believes that a major buying opportunity in USD is unfolding in front of our eyes and most other asset classes' behaviour is backing this view up. 

TMN is amazed with the number of charts that look horrible after this past Friday. We could show them all if you have a week... Below you will find a small best of collection that shows that the current crossroads could be linked to something larger. The run up to this cross roads felt like it lasted forever but now we are here and TMN believes the trading opportunities coming up will be immense. 

Since 2007, VIX has given 3 SPX related sell signals, and all 3 were generated whenever VIX bounced off the 16 level . Additionally, we also had two extreme SPX sell signals that were generated with a VIX weekly close above the 38 level; the first being just before the Lehman collapse and the second one in May last year. TMN believes that the extreme selling last May was also averted/contained  in some way by the usual suspects.

So far VIX has bounced off the16 support level, initiating in that way another SPX sell signal. It has also closed above the mid-BB, and as a result, a trip to the 23 level and the upper-BB is in the cards to start with.

Also 1 month vol over 3 months speaks for itself

One of the two has to break down. So far it has been very hard to understand if the mkt has identified a long term trend there. It seems that everybody will again be looking to the government...

With obvious results elsewhere...

..and as expected small caps are underperforming...

Crucial for all of the above to play out as expected is the USD.

A weekly close above 80.16 seems a first realistic target, achievable quickly, and thereafter TMN will be looking for the long awaited breakout thru 81.44. Once that is achieved the general perception on the USD might shift meaningfully in a sense of people will be starting to see higher lows from 2008 on this chart. 

Sunday, 23 January 2011

Credit Crunchy China

We start with China and SSEC. An interesting point that TMN would like to show is the symmetry, in terms of points gained, after the long holiday break in 2009 and 2010. As it can be observed in the chart, SSEC opened with a gap up and gained exactly the same amount of points in 2010 as it did in 2009. If the 2010 pattern unfolds similarly to the 2009 one, then we should see further losses on the index going forward.

Furthermore, liquidity in the Chinese markets seems to be giving alarming signals. The 1 month SHIBOR has been going up for some time now and is hitting levels that we experienced back in October 2007, when the US stock markets topped out.

Staying on the Chinese markets and taking into account that the Baltic Dry Index has been falling apart, makes TMN to believe that there is something brewing in China, its liquidity health, and demand for commodities.

Finally, divergences in the US stock markets are all over the place.

TMN's volume indicator is exhibiting a huge negative divergence similar to or even greater to the positive divergence at the beginning of 2009 that ignited the rally off the March lows. Looking at the more short term indicators, percentage of stocks above their 50/200 moving average and the NYMO the picture does not really change.

So what is really going on? Last week we saw the Spanish and the Greek stock indexes rallying like there is no tomorrow......and yes, TMN thinks that there may be no tomorrow for those two countries but on a negative tone and not a positive one as the indexes signalled last week. Maybe this was similar to the short squeeze the markets experienced back in September 2008 just before the Lehman Brothers collapse.
TMN also believes that municipality bonds will affect the stock markets sooner or later; and combined with the European sovereign problems and the apparent Chinese liquidity problem will lead to a very nasty outcome in the near future.

Sunday, 9 January 2011

USD ahead of the crowd again?

Well, TMN would like to believe yes as many growth negative set ups are coming together. The main driver seems to be the USD and it is looking higher. A weekly close above 81.44 would be a hugely bullish signal. This would get a large part of the market suddenly seeing higher lows from 2008 on this chart. 

Gold bounces back versus copper coming back from the QE2 related decline. There is never any trouble in asset markets without this ratio not only participating but usually leading. 

Do we want to trust the government? See below 30 year bonds versus SPX.

In the very short term risk seems to be rolling over

See also small caps:

For a while TMN has been going on about Spain and the IBEX and it ain't looking pretty at all! In fact its close to a massive break on the weekly charts.