Well there you go, this is the lowest yield reached this century. Now there were many close calls and bond prices continued to rally afterwards. However this low is more valid because it will be THE low if the Fed hikes. “Bonds have a tendency to peak about midway through an economic expansion.”- Murphy
The misleading thing, is that for a small trader (who is not even an investor) the turn in bonds could be considered as the beginning of the expansion. For an investor, because he has large sums, he takes the opposite side.
He adds in the book that the peak in bonds is a signal that growth has turned from healthy noninflationary growth to inflationary growth. And what does inflationary growth mean? Rally in gold of course.
In the book as well, bonds peak on average 27 months ahead of the top of the business cycle. That means if this is a low and the average holds, it will be April 2017 before we get to the top of the cycle.
I have much more to say, but I have to go. To be continued.
This is the business cycle for the last 15 years, US GDP. Now the green line is the average GDP growth in the US since they severed ties completely with Gold. Now if I shared the GDP plotting since 1971 until now, it will be a series of peaks and troughs going above and below this line.
So you can see that the cycle found a bottom in 2009 and has now crossed above the average for the first time in 13 years. Of course if we do it on a quarterly basis it would have crossed many times. But we are focusing on the annual reading.
Now you can say, but how can they raise rates with inflation not near the 2%? Well I would refer you again to the Taylor rule. The formula takes the rate of inflation and the target rate into consideration, and despite that the result was that interest rates should be at 0.97%.
Surely, surely this justifies an increase of just 0.25% for now.
So what is the likely scenario from now?
Well we get a rate hike, more likely in December. Bonds continue to turn lower (yields rise). Now stocks will start correcting while commodities start to rally (John Murphy excluded agricultural commodities from this model. We are talking mainly gold and oil). This could help the mysterious rallies in Gold and Oil.
Dust settles and stocks start to rally, may be even make the new high anticipated (2400). Then they start to follow the bonds to the downside and we start the contraction phase.
Limitations
The biggest concern is that commodities should have rallied a while back. Although I mentioned earlier that they could start their rally after their rate hike.
The second problem is that interest rates based on the model should have been hiked several times already. Yet it hasn’t.
So while the previous two posts can be an explanation. Based on intermarket analysis, entering the end of the expansionary cycle without the rally of gold is a classic sign of deflation. How gold and oil will react to the news of the hike will be a telling sign of which stage are we about to enter.
Conclusion
Whether it is the end of an expansion or the beginning of deflation, the Fed needs to hike rates to face it…and fast.
Yeah, interesting analysis, the corner that the fed are in is in relation to the stock market in particular and the Chinese impact in general.
Both are linked, there will likely be a knee jerk on the inevitable announcement whether in this year or next, but the key will be earnings - remain favourable and the fed will be seen to be ahead of the curve, but should the opposite happen and it’s anybody’s guess when the selling would stop.
If a central banker says that what has been happening in the Chinese economy is irrelevant to the US or more likely state that it’s influence is not so important then alarm bells - not unlike such statements back in 2008 regarding property.
If it were my decision I would wait and see, not a fudge, just good management = the road ahead is cloudy, slow down and make no sudden movements, indicate well in advance should movement be needed.
And imagine the Euphoria stock marketeers will be in if the earnings hold/increase. You would see companies like Apple are doing, Exxon recovering and doing better. If the stock market survived that, the stock market can never go down.
I mean that is always the cue, but we are yet to hear it aren’t we?
And I would start to target new high again, we’ll have to wait for a few weeks for the clouds to lift I suppose, in meantime choppy market means short term trading to stay safe.
Once again a volatile week. Stocks have been mixed from the get go so is the currency pairs. I’ve managed not to place any trades so far despite AUD strength across the board early into the session AUDNZD long in particular looked tempting on the premise of RNBZ rate cut well maybe traders are already pricing in Ive missed my preferred entry I’ll see if there comes another signal. The trouble with this setup is that I’m wary of AUD gaining much against NZD given the growth in China and stock market uncertainty. There’s employment data up ahead for AUD, that could give an indication or two on how the other sectors are picking up as opposed to mining.
Its interesting how EURNZD and EURAUD managed to climb right back up to where it fell when Draghi delivered his birthday speech.
RBNZ is said to cut rate, could this climb back up a price in ? I’m planning a short trade along this setup. We’ll see.
this is a great example because this time we do not have to wait and see if the mid Asian or the high/low is the deciding price level. The divergence was not so easy to spot, but if someone had the mid Asian level on the chart then I think it was a great Risk/Reward Ratio trade.
Although it is hard to calculate Risk/Reward Ratio if we do not have a SL as it is needed for the calculation
Yeah, the divergence was set up on Sunday evening, Eur/Usd was actually the one that caught my attention, so just shorted both of them at their mid Asian levels, exit both at 45 pips, neither really needed a SL
The divergence was on both USDX and 10yr, in such a case I don’t mind taking on more risk ( really was no need for sl in either )
interesting to see how you change (we can call most likely “develop”) with the time. I do not know if you have recognized it or if it is maybe only how I see it.
I remember in the beginning of the thread you were mostly discussing only fundamentals. I thought you are completely a fundamental type of trader. If I check the last months, for sure you have shared with us more technical setups than fundamental opinions. Is it like that only accidently or do you just change the way you trade? How do you see it?
Some years ago I was fundamental only, but then I came across a wise counsel which said that to discount any aspect of the market can mean it’s possible to discount potential.
So I set about learning TA in all it’s intricacies. I started off with something I was already well versed on, that is ‘Supply and Demand’. Then progressed through the various patterns and indicators etc.
Then from all of those I finally settled on something that made sense to my little brain - divergences.
But I use TA very much in association with fundamentals and market sentiment. It’s the FA that gives me my direction, the TA my entry and exit.
So on that vein, this is what I could see this morning before UK data release on h1 GBP/USD
First chart is ws on usdx (GMT chart), second one is ws on 10yr (GMT -5)
This is what I can see tonight so exit the long for three reasons, first the Fed risk, second the divergence and third the sector analysis/volume
SPY volume is low today, the largest riser is XLE on low volume with one company rising over 14%, oil price is up - so lonely general leading the pack - same story on the others.
Generally defensives leading into the bargain (excluding energy)
I completely agree with your first post. I also believe that having a solid understanding of fundamentals help in a big way to decide the direction. Still, TA is needed for everyone, just like you said.
Your second post is as good as it can maximum get IMO. If you do not mind, maybe we can make exactly the same analysis, maybe with the same 3 print screen from early October. Until that time I cannot really do such deep analysis. It is all logical what you wrote. I will be interested how S&P will advance today in the US session. Maybe on a longer term chart we can even spot the reversal to the upside with your strategy.
Been working on stuff (as usual). I think I got it. Well, getting closer anyway.
I want to see the flow of the market. Tell me what you think of this.
Now the numbers are just the daily totals, added up. So on each day that number will be how many % they are at for the entire month, against everyone. The whole perspective here is how the month is unraveling.
For example on Wed 16th (end of day) the AUD was the strongest currency, every day added up for this month.
And another thing, when you see the figures, you need to think that there are 7 other currencies. So, in one day, if they were up 7%, that would be, broadly speaking, up 1% on every one. It’s just a perspective.
But you don’t see each days totals there. Every day is a cumulative running total. (If you subtract the previous day’s number from the present day’s number, that is how much they had on that day).
I can’t wait to see how the month’s end play plays out.
And also I can’t wait to start filling in the numbers for the other months this year. (I wanted to start with this month first).
Mike, very easy to read chart, will be interesting to see how JPY and USD change in the early part of the week ahead, a shift by yen over to the right?
WS excelled again this morning, this time on GBPUSD.
I was long Gbp like most guys from yesterday. The general advice is to add even more this morning when price was on the rise, but WS was warning against it, so I held back on the trigger.
Then h1 showed a double top, this is Friday a lot of longs and WS gave a very special signal, on a double top it gave a second signal - exit please.
That drop was 95 pips.
Update: closed at over minus 130 pips
The S&P still refuses to acknowledge the FED action, so will have to wait for some money (volume) to come back into that market before buying again.
The leader down today was XLE (gapped open down), reflecting oil price, but just like the push up it fall is being led by a few generals, likewise SPY gapped open down, most of it’s volume spent yesterday - so Monday and Tuesday should set a tone, would be nice to see some buying.
Adam Button says he “struggles to see a good reason for such aggressive selling”, John Murphy gives the heads up, it’s not the selling that is key, it is the buying before the selling.
Many thanks to both Larry Williams and John Murphy for their insights.
Hey guys…Peter.
I have the updated the table (strength meter). So, the last figures will be what the monthly candles are showing, at this point in the month.
Well, all I can say is, just look at the Comms. We can see the progression. So, our jobs are to determine whether this is a correction, or is a turn around. (The colors should help see that)
Also, Peter, we can see the JPY and the USD separate (divergence?). Them 2 normally are close to one another. It’s just like the EUR and the CHF.
Well, there’s a lot we can deduce from the flow.
If any one wants to chat about it…let’s get it on.
I agree with Peter, your chart is a great summary of everything you do. It is organized by date, strength and % and with a good layout it is a lot easier to understand everything in a second than it was earlier with reading 2 pages.
Keep us updated how your system runs with the volatility SL, I am interested if you are more successful with it (I would assume that) than with the 100 pips SL.
