We are opening this update to open access. We once a month open a few updates for open access.
Markets never make it easy for you. What may seem right to you is what is seeming right to hundreds and thousands others in the markets and that is precisely why markets do not do what you want it to do.
Now I can assure you people after having seen a uptrend of the kind seen in 2012 will naturally think about the gaping downside to 1320. In fact it is logical and human to think about it. It is also the right trade. But markets will keep plucking away at your margin for longer than you can stay alive specially if you are $40k $50k type accounts. We need to be absolutely mighty sure of our stops. They have to move to break even at the first opportunity. You cannot let the big boys take money off you. You have to have extremely low tolerance for losses. Perfection is not an option but a necessity.
I have rarely seen a flow of this magnitude into bond markets. It may not be wrong to call the bond trend to be the only true parabolic move. Even the Gold move to 1900 did not seem as big a parabola or as sustained as the bond uptrend.
Not only are bond markets rising at this pace but they are rising along with equity markets. That is what excess cash in the system can do. We have seen this sort of divergence in January when finally equity markets in a rarity won that battle as bond markets relented in February as Bunds and UST10 sold off. It also allowed yen pairs to rise over 500 pips.
Come April and we seem to be in a similar scenario where bonds continue to breakout while equity markets seem stable above key levels (1366 weekly support, 1357 volume hole and 1375 holding daily and hourly support). The Key resistance now lie at 1391 and 1422.
The difference between Jan 2012 and April 2012 seem to be the increasing cracks in the relationship between Bundesbank and ECB. German inflation is rising and there is no way that Bundesbank will now allow ECB to conduct another wayward LTRO to help out Italy and Spain. With the option of LTRO gone, ECB will be relying on its SMP program to directly buy the bonds off the market and during auction. This has always been special situation for ECB and they hate to do it which is why they came up with the idea of LTRO. So with bunds rising in April, markets are now hanging by a thin thread and hope that FED will oblige with their own version of QE which seem increasingly unlikely. The downside looks creamy on risk assets.
So for premium subs here we go with some charts and analysis.
Copper has broken down. This is the first sign if you are a fundamental intermarket analyst. The red metal is saying that there is downside here to the risk rally of 2012. The trade should be to short Copper with a stop at 3.77 and a target of 3.5 and extended target of 3.3.
The ratio of the high yield assets to US treasury prices have fallen below 200 ma for over a week now and has not crossed back up again. The Oscillators and stochastics are sliding down given the intense selling pressure. This has also been witnessed other assets including NYSE ratio of declining to advancing volumes.
Wheat futures roared back over 1% even equity markets sliding. A one day charge back does not really change the strong downtrend started in the first week of April but it still needs to be noted given it was the largest green candle in April. CRB index did not keep pace with wheat futures and hence could be more a local issue.
CRB index futures have been in a strong downtrend since March. SPX diverged away from CRB for March but has faded its divergence in April and is now slowly falling in line with imposing downtrend of CRB. If the CRB downtrend is to super imposed on SPX then SPX downside is increasingly looking below 1300. It may look impossible standing at 1375 though but remember markets surprise at its ends. Much of March divergence has been led by tech stocks but fizzle is now disappearing. One must note that overarching weight age on markets is for commodity stocks and hence CRB index downtrend will ultimately impose itself.
The line in sand where we placed our stop was 1376. You can see why? The hourly Mid line and the horizontal resistance coincide at 1377. The upper BB now comes in at 1387 on the hourly which could be a worthy target for another violent move. On the daily though, the resistance still seem to be 1391.
On the Bond markets
The Italian BTP futures fell below the crucial 100 mark, a level last seen in Jan 2012. A sustained break will target 96 which also mean EU fall will not limit at 1.2950 but 1.26.
Sensing the apparent loss of confidence in Italian bonds, Bunds are at all time highs.
Schatz is still bullish but for unknown reasons has not yet broken out above 110.5. Something that cannot go up will fall. So watch out.
EJ seems to be leading the arrogance for Euro as it pummels the shorts. The target for the bear move seem to be 107.8 and then 108.1 zone which also caps the 50 dma.
The case with AJ is simpler. The 50 DMA comes in at 85.4 zone. That is also the upper BB line sloping for a meeting with the 50 MA. AJ is bouncing off the 100 MA line and hence should add weight for a rally to 85.5. The stochastic are bullish while vortex has crossed over.
The USDCAD which had so much expectation riding on it when it broke the 1.005 barrier but only by a pip before a flood pushed it down below .9900 when BOC maintained rates and even was hawkish. A day later BOC released its minutes which were anything by dovish. In fact the whole premise of CAD GDP was pinned at $104 per barrel by BOC. It was strange to see the Canadian central bank to use such bullish figure for Oil to base its GDP estimates. Ever since the minutes have been released, CAD has been weak.
It is friday and may not be bad idea to scale out of positions and chill out a bit.
- The April Live Trade Sheet
- The April Live Trade Room
- C3X Performance FX portfolio
- Key economic data and speaker list for this week can be found here:Economic calendar
- The Bond auction schedule can be found here: Bond schedule