Are we going to have a mini rally?

[dash1]

So guys after all the drama in Germany and falling oil prices and, Clinton coming up trumps yesterday, we got a bounce in US stocks tonight.

 

What's the view for a small bounce globally? Or, is the financial sector and lower prices going to continue to drive stocks lower

[donaldprice]

Looking at the equity markets and FX a number of issues that will be in focus. We have a serious load of Fed meetings coming on this week, yet their is some serious scepticism over the timing of rates. Once the US elections are over and done with, then we will have much more of a directional view. If opec fails to reach a meeting, then we could see some further downside which could weigh on equities like it did in January earlier this year. 

We also have the Italian referendum in December the 4th on the vote to have electoral and government reform. This in itself could cause political instability and market jiters, which will without doubt be witnessed several days, possibly a few weeks before the referendum takes place, very much like it did in Brexit and the Fed rate interest rate last week.

We also have the situation with Deutsche bank, if they fail to resolve the credit issue, their could be some instability. This is why from now until december the following will be mostly in focus: Pressure on USD Yen, the DX, FTSE 100, the DOW, EUR-USD is a strange one because during the greek crisis, it was doing well.

Cable will definitly face continued pressure until Brexit direction is established. 

Gold will most likely be a very good performer due to the uncertainty.

German Bund and JCB's could start to see a steepening of the Yield curve towards end of the year due to potential rate hike fears and Draghi potentially signalling a halt or slow down to the current QE bond buying scheme. 

Like all economic events always best to feel what others are feeling no matter how irrational it is. I am more of a technical analyst but fundamentals should always be added to your basket of strategies.

Always good to post some charts and share some of your ideas of the technical page, the more the better. 

 

[Mercury]

Nice summary of the backdrop  and worth keeping in mind but I really don't think fundamentals are of much use on Stocks and Bonds at present given the never before seen central bank policy.  The only fundamental I will be watching in the short term, other than an actual interest rate rise, is Q3 earnings.  Perhaps this will finally throw some cold water on things.  There are many who think the bull will continue so long as the CBs keep the accomodative taps running.  I'm not so sure, at some point fear of heights will kick in and probably before any actual clear trigger (i.e. the rumours will be sufficient to start the rout).  You know my views that Brexit is a red herring (except in political terms) so I won't go there again.

 

If I look at the technicals as my only possible guide then, and using the FTSE as a case in point, I see a nice Triangle formation on the Daily chart that seems to fit with a EWT1-2 retrace in A-B-C form.  If this is correct then the market is in wave 5 of wave C and should end just below the previous all time high to give us the wave 2 end.  At that point we would see a drop off in wave 1 of 3 and the rout would begin.

 

Alternatively we could be seeing the beginnings of a stronger motive wave across the board (i.e. European markets chance profile to follow the US large Caps and Nasdaq) up.  This would result in a new all time high on the FTSE100 (where, who knows???).  There is also the possibility of a double top.

 

We have seen a lot of resistance at the Fib 88% level on the FTSE with 3 failed tests.  Usually they say third times is a charm but perhaps fourth this time?  The market is rallying off the lower triangle line and another test of the Fib 88% OR a drop back and retest of the lower Triangle line will be the next points of interest.

 



[dash1]

I think you may have it spot on. As I said initially, I think this is the start of a mini rally before the storm clouds appear. I also agree with you with regards to q3 earnings and, this is where we are going to see a sharp decline on top of that, there is a great chance of the interest rate hike in December that will send investors running for the hills.

 

The question then is, will be US pick up from where it left off last night?

[Mercury]

We are in agreement , although if Q3 earnings do cause any kind of bearish reaction I suspect the Fed will not raise rates in December.  Ironically such inaction would only serve to affirm the bearish sentiment as it would confirm that the economy is not strong enough to raise rates.  This is the ultimate end game dilemma for the central bankers.  They do not want to cause a market crash as their thesis is based upon the wealthy driving the economy (and that means the people invested in the markets...).  Yet they have to raise rates to signal that their policies are working.  If you believe, as I do, that the only reason for the bull market since 2009 is CB policy then taking that away drops the markets.  Eventually not raise rates will erode confidence in the CBs declarations that the economy is responding so either way there is only one way out of this and that is the crash and reset that should have happened in 2009.

 

As to what will happen when the US opens today?  Who knows?  Too short term for me and I guess for day traders they must wait and read the tea leaves in the price action.  In terms of the longer term prospects I can see 2 scenarios:

1. The S&P has already topped out in a head & shoulders move and will retrace (or already has) before a strong move down
2. The market has not yet topped out and will do so in Oct.

These match the 2 scenarios I have on the FTSE BTW.

 

There are several points of key resistance ahead: one we are now at, which is the mini H&S neckline; another just above is the Triangle formed from 2 tops of the H&S formation.  If the market pushes through these then higher highs are on the cards.

 

Shorter term you can see a possible flag break on the 4 Hour and hourly charts.  On the hourly the flag has already been retested once and may be a second time before a rally.  Therefore the run up to US opening will be instructive.  If Europe delivers that small pullback and retest then the US may rally at opening, otherwise it may pullback first and then rally.  If Europe pushes on through then we will have to reassess US reaction.  My money is on an eventual rally through the resistance zones, a pull back to the Flag would be a good Long point if you so desired.

 



[Guest Sid]

So you are saying it could go up or down - thanks

[Mercury]

Well  that is always true and anyone who doesn't accept that is destined for penury.  What I do is identify road map scenarios and if the market follows my road map I hone down to one scenario that I give a higher likelihood of happening to and then identify good low risk entry points.  This takes time to evolve and the price action tells the tale.

 

Perhaps you have a better view to offer us?