Mercury

Oil has been bugging me of late with its vacillations but this is often the case before a big move. Yesterday was perhaps a tell though. I am confident of my take on this move being a large A-B-C with a wave C rally to come, see my previous posts on this. Some people think oppositely, that the gap on the drone attack was an aberration and the market wants to head south. But if you look at the Momentum indicator you will clearly see that there was very strong PMD at the turn prior to the drone attack so the way I read it was that the market wanted to go North and that is why the drone attack produced such a huge gap move. Since then we have seen the gap closed but a turn that is a higher low (my B green) and then we got he vacillation. However yesterday we saw a sharp rally that concluded an effective A-B-C retrace to the Fib 50% zone (just short). Now price is testing the overhead resistance zone at 6,200. A breakout here is likely next week I think and that would be very bullish. My A-B-C projection have the market exceeding the drone strike high ($71) but also the rally high previous to that ($75) and a retest of the weekly channel line is possible as the rally end, although the Fib 76/78% ($78-79) zone is also a candidate ($82). This would be a wave C, which would be fast and strong but would probably have a half way Flag consolidation, just about the drone strike rally high I estimate. Watch out for a gap break of resistance tomorrow but also we could see a short term failed test and bearish move to set up the next push.

Forgot to note the COT data! on my daily chart. At the wave C turn (or just before it actually) the net COT position for non commercials was -70K a major low and at the recent wave 2 (blue) again it was at a significant net low. If I drew a graph of the net COT positions for the non commercials they would show a correlation to price (i.e. the non commercials are net max short when the market turns bullish). This is because the commercials, the smart money in that they are the ones who really understand the supply/demand situation best, whereas the non commercials have to analyse it to figure it out, and seemingly mostly get it wrong. Commercials appear to be reading the market such that they want to lock in prices via futures contract while the prices are low, fearing the price surge my analysis is suggesting.

Still not resolved. I keep redrawing my weekly channel line and vacillating between bull and bear (well I am bullish so my vacillation is about timing). My current thinking is that a break of the recent high is at key resistance and is therefore bullish but other signals are suggesting a pull back is on the cards, possible even if we get that breakout (i.e. a fakeout). A much more satisfactory set up would be a pull back, maybe to retest my redrawn channel line at circa 11,065, the Fib 38%, and then a strong rally up towards 11.600 would be the prize. 11,225 would be another zone of resistance (I haven't drawn it in yet). Not easy this one just now. I would be keeping Longs from below the 11,065 area but would prefer to see that channel line retest. Longs on the break out either need very wide stops (i.e. below 11,065) of very close to protect against a fakeout (but this risks a short term stop out and go). The value of identifying the turns early once again is illustrated.

Well no doubt the descending triangle can be described as bearish but the salient point here is whether the market is about to, or already has, turned bullish. The maxim to think of here is buy weakness. By the time the trend looks bullish enough a sizable chunk of the move could be done and it will be harder to get in safely (i.e. without a huge draw down risk). In terms of the macro/fundamentals picture it is simply one of supply and demand. At these prices the farmers cannot make money so they switch to something else and the workers cannot be paid sufficient for their needs because the economics are against the farmers so they stop coming to work and go find something else to do. No farm hands no business. You don't need to track this, just appreciate that this is where we are. Then starts a cycle of price increase until it is worth getting back into coffee farming and the cycle repeats itself. In between the market extremes can be sharp moves due to weather or some other impacting factor but generally the trend will remain the same until the cycle is completed. There is no sign of coffee demand shrinking so as supply shrinks the price rallies, basic high school economics really. If you want to see this in action just look at the Monthly chart, I have attached it below again. You can see the cycle clearly. Note also the very strong PMD that precipitates each rally phase, which is what we have right now and since 1975 this massive PMD has always produced a big rally... Looking at the Weekly, since my first post we have seen the bearish move bottom out with a higher low and then put in another 1-2 bearish retrace before rallying away. To me this suggest that the bottom of this bearish cycle has been achieved, which I denote as a wave C (pink/purple). This is a macro wave end. Then we have a series of 1-2s that is setting up a strong wave 3 rally. On the weekly you can see an important resistance level around 11,500 ($11.50/lb). This area has been a key zone of support/resistance over the long term and we may see some initial rejections here and a consolidation phase before a breakout. We could see a fast breakout either of course... There is strong PMD on the weekly chart as well and both Pink and Purple (see monthly chart) A-B-C is sound with the final bearish wave C describing a near perfect 1-5 form. Note an A-B-C is a counter trend wave, which is usually followed by a 1-5 motive wave (this means the wave top exceeds the start of the A-B-C, which suggests the next rally phase will carry beyond the 30,890 level. On the daily chart you can see the 1-2s more clearly. Again there is PMD at the wave C bear market end and also at the wave 2 (purple). There is PMD at the wave 2 (blue) on the shorter time frame charts. Both 1-2s are good A-B-Cs and now we have a higher high than the wave 1 (blue). All very bullish. Next comes a test of the bearish channel resistance line and above that the 11,500 key resistance line. Given the price action of the current rally I might expect a pull back or consolidation either at the channel line of the key resistance line (above or below) before the rally really gets going. There is a trading dilemma now though. Do you go long now with a wide stop in case there is a strong breakout or wait for a pull back/consolidation that might never come. Trading is not easy! Another thing to watch out for is opening gaps. This market gets a lot and we could see a large gap through resistance, which would most likely be a breakaway gap (i.e. it will not be closed). This market is getting more interesting by the day and given the potential (20000 points or so) and despite the fact this may take years to achieve it is as good an opportunity as I can find anywhere. The big players must know this too...

While the lemmings are cheering the rate cut and heading for the imaginary bridge again, while sneering at anyone who is thinking of turning back, it might be worth looking at what happened when the Fed made the past 2 cuts, these in the face of an original policy of "normalisation", whatever that really means but in this context rate raising and QE reversal. Markets rally on rate cuts right? Isn't that the whole point of the Fed, to keep the markets up 🎅 The Charts tell a clear story, in each of the last two rate cut events the markets fell at of a few days after the cut was announced. The first at the end of July was at a newly minted ATH, the second was near ATH but not quite. In July the NFP met consensus a day or two later but the market continued to plunge before a mysterious about face buy the dip action ensued to save the day again. In September the NFP was a week and a half later and was a miss. By then the drop was well under way and after another days bearishness, and despite the NFP miss, the buy the dip action reemerged. You might also be interested in the Vix action. At all of the recent bearish drops the Vix spiked. No surprise there BUT it spiked from a consolidation zone and each one since 2017 has been at a higher low and we are at another one now. Hmm...! So when the majority of retail trade on IG, yes that's all of us by the way, are Short, it might just be that they have looked at the form on this and anyway the exposure is tiny so why not? The consensus view is rally forever. the contrarian view is Short every ATH, soon enough, unless there is a major breakout that is sustained with volume, it will drop and never come back. In the meantime there are great, and swift, profits to be made in catching the dips on the way down.

Similarly to EURUSD AUDUSD looks to be in a bearish retrace at present. Interestingly this one strikes me as a clearer case for a deeper retrace, which if the pairs are aligned suggests scenario 1 for the EURUSD, a retrace to the 11,000 level (see separate thread). On this pair I have a fairly decent a-5 up to a wave 1 (brown) at the daily resistance trend line and NMD at the turn. If correct then I would not be surprised to see a retest of the Fib 50% support area, circa 6800, before the rally really gets going and a break of the daily trend line and the associated horizontal resistance zone, circa 6940 is crucial to the bulls.

So no breakout so far and now 2 scenarios present, similarly to USD DX (see my what is the USD doing? thread). Scenarios: Small scale a-b-c retrace of the recent high that just failed to break to a new high and then the rally fires up and breaks through that overhead key resistance (a la the chart from my previous post - turn may come around the Fib 62% 11,117 area) Much longer A-B-C retrace that retests the daily trend line breakout zone, again at the Fib 62% but off the larger rally and this time circa 11,000. Ya pays yer money, ya makes yer choice. Again the critical point is a break through the 11,160 key resistance area but if the market were to offer up 11,000 then that would be excellent to get ahead of the rally.

Looks like the USD is not going to give up without a fight, why would we expect it to? DX price fell and turned just short of the previous low in what could turn out to be a wave B rather than a 1. On the 1H chart there was decent PMD to support this move so I would expect a short rally period and a turn at a lower high wave 2 at a minimum BUT if we see a strong rally then the wave B is in play and new higher highs to a wave C are on the cards. 2 scenarios: The up down on the 4H chart is a wave A-B and now we get a strong wave C rally to top out at 2 (brown) and turn back down into a large wave 3 bear move. Most likely candidates are Fibs 50/62% but price action will enlighten us on that later The move down is a wave 1 after a wave 2 (brown already done - see 1H chart) so we see a smaller rally that turns lower than the FOMC spike candle top. Impossible to know which as yet so all we can do is nothing yet and wait for price action to play out. With US NFP and ISM manu data later today and ISM non mani data early next week there is plenty of resolution impetus to come. The key in any case is a break of the support zone at circa 9680. I am slightly favouring scenario 1 as I would expect USD bulls to put up a decent fight but will remain open to either. I remain medium term bearish USD.

At least Brexit would be resolved. Corbyn would immediately exit the EU and bring Britain (probably England by then) into a Marxist alliance with China, North Korea, Venezuela, Cuba and the PLO (or and probably sinn fein also).

No break out today alas, waiting for tomorrow's NFP and ISM manufacturing data releases maybe. Looks like a small scale A-B-C retrace off the channel resistance line, similar on AUDUSD. Might see another leg lower tomorrow or overnight, which could reach the Fib 50% but would expect price to return above the weekly channel line and close above by the end of play tomorrow if a breakout is on the cards. Hopefully we will actually see a confirmed breakout tomorrow on both EURUSD and AUDUSD, maybe also GBPUSD.

Bitcoin breakout rally? break higher that recent high at my 1 (blue) to confirm.

Since my last post on the breakout of a small channel formation after a potential wave 1 (blue) turn into a rally this market has been in a nice steady rally phase with what looks like a 1-2 retracement put in to prime a longer rally phase. This seems to have kicked off in advance of the Fed, almost as if the AUD traders knew something... Now price is touching on the medium term daily chart resistance trend line. A breakout here will produce a much stronger and longer rally phase I feel.

Signs that the retrace rally is finally on. The Fed blinked yesterday and likely there is more to come. On the technicals front price has broken back out through the weekly chart resistance trend line, but still needs to close firmly above this at the end of the week. More immediate perhaps is a horizontal zone of resistance that price is now approaching. A firm breakout here will result in a strong rally phase I feel that should carry to the Fib 38% zone at least.

And it hasn't even really got going yet @dmedin, EURUSD hasn't even reached the Fib 23%!

Hmm .25% is that enough?

I would be wary ahead of the FOMC @dmedinas a further retrace on EURUSD and USD DX is very much possible, maybe even probable. I would not be surprised to see DX achieve a 50% or more retrace. It leaves me wondering whether the certainty everyone seems to have around the Fed rate cut is worthy. I wonder whether Powell is going to disappoint? On the EURUSD chart I have the following: Likely wave 1 (brown) off the wave 1 (blue) turn and rally to kick off the larger counter trend rally with a 1-5 form and a fakeout at the weekly chart channel line (note it wasn't a fakeout on the weekly chart, just a legitimate spike through and drop back, which means this line is still good (ie unbroken) It is possible we have seen a small 1-2 retrace to wave A (light blue) but I doubt it. I would expect a deeper retrace and in this case the Fib 62% looks favourite so I currently see this as a larger A-B-C with B possibly done and now we should see a drop off to that Fib 62% test. This could all happen at light speed around the FOMC, making it hard to trade, although I am minded to think we may see a hardening of the USD ahead of the FOMC, perhaps as jitters of Powell not delivering kick in only for him to come up with the goods and send the USD down and down and down. Will be an interesting day and rest of the week too I expect. Key to the long term counter trend rally scenario is a break of the 11180 resistance zone.

The only trade that looks remotely interesting to me today, ahead of the FOMC that is, is Gold and Silver. Price action has been a bit whipsawish lately, leaving room for both the consolidation and deeper retrace scenarios and as yet neither of these are resolved. Perhaps the FOMC and subsequent critical data releases could resolve this. The Pennant on Silver remains in play but an equivalent Flag on Gold is not. Again there is a lack of clarity in the big picture. However in the short term price action has shot up and quickly reversed back down only to be stopped again and may now be in the process of reversing Long again. Looking at Gold charts this time I see the following: On the 1H chart you can see that spiky price action I referred to above and all of the bearish price action can be contained with a Triangle formation, which was turned with PMD and has now broken out with a small 1-2 retrace to set up a stronger rally (currently in play). A higher high than the 1 (grey) was posted just now but overhead resistance levels need to be be broken convincingly for this to be seen as sustained. Zooming out a bit to the 4H chart (Daily is unchanged since my last post in terms of set up), and if this is a deeper retrace move rather than a consolidation, they a complex retrace is in play. I have marked up a series of A-B-C waves that could culminate in a wave B (green) that would precipitate the final fast wave C of the deeper retrace. I would expect at least a retest of the Fib 76/78% resistance zone where the wave B (brown) failed (circa 1535) or a little higher (not withstanding FOMC spike). If this doesn't hold then the odds are for a breakout of the previous highs at 1555ish, which would prove the consolidation scenario and then strap in for a long and fast bull run. I am not really sure we have the necessary fundamentals picture for this yet so favour the deeper retrace but it is a 50/50 really. Of course the consolidation could just run on longer and past the FOMC release. Silver 1H chart also showing a very similar pattern to Gold.

For the Jedi worked out well it did not As one lemming said to the other, lets go with the flow man, I'm sure there is a bridge to the other side or everyone wouldn't be running off the cliff!

So the never ending story of the US stocks bull continues with new ATHs on the S&P500 and Nasdaq on more tech momentum led surges despite earnings trending down, global economic data worsening (heading into recession territory), huge geopolitical risk environment and the infamous China trade deal (a deal some people believe will never happen but is twanging the heartstrings of news hounds). Previously I have suggested a melt up scenario to end the bull; I am not the only one with this thinking, far from it. The long term charts depict a major long term resistance trend line which must be broken and not returned to for another leg of the never ending bull to stick. Non US large caps remain below their ATHs, posted some time ago. As I outlined in my recession warnings thread, there are some data releases in the coming days, through to early next week, that could fuel either a strong drop from here and perhaps a Santa Clause rally to cap off the Bull OR a melt up from here that capitulates quickly, thus ending the Bull. It is worth noting that for the past couple of years (since the Jan 2018 top) every time we get an ATH we get a significant drop shortly thereafter. Will this time be different? Feels like it has to be if the perma bulls are to be right. Previously commentators were talking about a recession in a few years, 2022 or thereabouts, but economist consensus is always wrong on this kind of call and we only realise we are in a recession in hindsight (similar with market tops). Now there are more and more people targeting 2020... Who knows, maybe we are already in recession and don't know it, although there are no shortage of signs. I quite like the melt up scenario as it fits with my Gold/Silver retrace scenario, these markets being in negative correlation at present. Of course we could get a mini melt up this week followed by that drop that seems typical of ATHs now and then a final melt up Santa rally to end it all. Speculation at present of course but what I am really suggesting is that if the perma bulls cannot drive price up and over the top and keep it there across the stocks board then the recent history suggest a sharp bearish drop post the ATHs. My EWT set up is looking for just such a drop to set up a final wave rally to end it (hence the Santa Claus rally scenario). But don't take it from me, there are many serious players who think similarly. Check out one I saw on Real Vision yesterday (attached is a link to his website and an article on exactly this topic). https://northmantrader.com/2019/10/26/zombieland/

So apparently this time it is different and the perma bulls are out in force with the Nasdaq and S&P500 hitting new ATHs. Next stop the moon! Luna... something... This is certainly going to be an interesting week I think and probably next week too. The Fed is up first, everyone expects more dovish policy to "calm" the market [Powell quote]. For calm I would read "goose". However the US earnings season is not at all encouraging for long term sustainable returns, in fact the trajectory is down, despite a lot of "meeting analysts expectations" but that is a figment and gaming, also designed to goose the share prices. Even more important perhaps is the forthcoming ISM data and the US NFP data. The former concludes next week with the non manufacturing data. The perma bulls have been pinning their moon shot on earnings and jobs, which is equated to the consumer. What happens if the Fed accommodates and then ISM and NFP data is poor I wonder? One scenario I have been tracking for some time is a final so-called "melt up" exhaustion spike rally that drops back to earth quickly. The scenario regarding the data releases would be a perfect catalyst for such an event. In the UK it looks like there is more bad news for jobs. Interesting that this didn't make the home page headlines; let the conspiracy theories begin... https://www.bbc.co.uk/news/business-50204701

A further leg up in the retest and an adjustment to my lower channel line has me projecting a likely test of the Fib 38% level early next week before a resumption of the Bearish phase. This would also support Gold and Silver rallies (see my Gold/Silver in a long term rally thread). I see most of the usual USD pairs responding accordingly with EURUSD, GBPUSD and AUDUSD being my preferred vehicles. Albeit that GBP is a bit more prone to short term reversals on perceived negative Brexit news. USDCAD is also impacted by Oil and USDJPY by stocks (Nikkei225). In due course I expect all of them to follow USD weakness.

Coffee has just made a reversal that brings up a long term rally scenario. Whereas I had been tracking further declines, but only to set up a major long term rally phase, there was always an alternate scenario such that the end of the Bear was already in. That alternative scenario now looks increasingly likely such that I cashed all my Shorts and went Long late last week (week just ended). The technicals: The bearish move off early July top (1-2 Purple) could be seen as either an A-B-C or a 1-5 but the A-B-C is perhaps a bit more obvious. There is strong PMD at the turn and rally point as 2 (purple) The rally up to 1 (green) again could be read either way but the bearish move down to 2 (green) is a definite A-B-C in my opinion. Had the subsequent rally been a short lived consolidation type move I would have readily believed that the bearish move would continue but after a short 1-2 (brown) the market rallied hard. Still if this rally was short lived it might be an A-B-C that set up a strong bearish move but then the next bearish phase shaped up like a Pennant or more likely a small scale 1-2 and then rallied again Now that price has broken back above 10,000 and made new higher highs I am much more convinced of the long term rally scenario. Obviously we need to see price break above the 10500 level to be more certain and then a break through the long term channel line (circa 11,000) is the next important move and then ultimately a break above 11,500 seals the deal. As there is a potential for this market to reach $30/lb there is plenty of time and lots of reward on the table. Frankly, given the nature of markets like stock indices, I find this opportunity far more compelling. Where else would you get a 20,000 point opportunity? Maybe if the Dow has a total meltdown... Of if the massive destinations for Gold and Bitcoin come off but that is all uncharted territory. This isn't! Just look at a price chart since the mid 1970s...

Gold and Silver have certainly been exhibiting whipsaw price action since the turn back down, which could be symptomatic of a complex retrace, as previously posted OR could be symptomatic of a consolidation. At the outset I noted 2 scenario possibilities as being either a retrace or a consolidation prior to continuation of this rally phase. I favoured the former but both remain possibilities. The fact that Silver has retraced to near its Fib 50% while Gold remains above its Fib 23% could suggest a consolidation is the right way to look at it. In addition the key drivers for Gold and Silver, in terms of them being a store of value in times of uncertainty, are clear enough within the macro economic picture including: Recession looming (data just keeps getting worse); likelihood increasing that the Fed reopens its dovish policy; political upheaval (EU/Brexit; USD/China trade wars; Trump vs everyone; Trump impeachment and what happens if Warren gets in..? and so on). Add to that the likelihood of a sustained period of USD weakness and the clamour for dislodging the USD as the reserve currency and Crypto movement against Fiat currency and the likelihood of the central banks getting what they are looking for (i.e. inflation) but not being able to control it (i.e. hyper inflation) and to cap it all Gold is advancing in all currencies and beating S&P500 returns. Phew! So the macro case for Gold (and also therefore Silver) is really as strong as it has even been. However for Gold to really go on a tear a hyper inflationary recession is what is indicated rather than the much feared deflationary recession. In fact those calling for a deflationary recession are also suggesting Gold will fall below the 2015/16 turning point. I can see that technical scenario but I do not believe it is likely. So taking all that, and the fact than Gold has broken through the critical 1350/60 level, there is a strong case for a consolidation scenario rather than a retrace back to that 1360 level. Still it is a classic of Chartist lore that a H&S neckline (Gold not Silver) is retested before a rally really gets going. However I might have expected that to have happened sooner and after a shorter rally phase. There is a technical scenario that seems like a better fit now to me as follows (using Silver as a better illustration but the same is true of Gold): Double bottom on the weekly chart (H&S for Gold) with a breakout of the Triangle consolidation phase (neckline for Gold) - no change there Small 1-2 (green) retrace after the larger 1-2 (Pink) within the Triangle. The current retrace (or consolidation), which hit just short of the Fib 50%; actually right on the Fib 50% if you draw from 2 (green) - see my daily chart - which is very relevant to the analytical solution as this would suggest that this may well be a Pennant on the rally up from 2 (green) to a wave 1 (blue). Hold this thought! If the current retrace is a Pennant that has completed then the wave 1 should conclude within the next major resistance zone (circa 2200) although Silver is very spiky so so a higher terminator is quite likely, especially if the Pennant extension marks a wave 3 (green) rather than a wave 1 blue. Price action will tell us as the move progresses so don't need to worry about it just yet. The key point here is the identification of the current retrace as a Pennant consolidation and not a 1-2 retrace as this negates another large leg lower and in fact a rally. If this is a Pennant then looking at the daily chart you will see that it has already broken out, put in a small 1-2 retrace on the Pennant line and rallied away hard. Price got knocked back a bit towards the end of Friday as stocks rallied towards new ATHs (US large caps) but has not yet achieved this (S&P500 is currently sitting on a double top). Also USD was in a retrace rally but I anticipate this reverts to a bearish stance soon, the drivers of which would be supportive of a Gold/Silver rally. There is PMD at the Fib 50% turning point, which is also a clean A-B-C. I note that the Pennant on Silver is curiously similar to that on Bitcoin... Coincidence? Those that call Bitcoin as a store of value asset would say no... All it will take on a Macro level for Silver/Gold to rally hard up through the resistance zones to a new higher high is a bit of negativity about the economy, the Fed policy, the trade wars, the global political unrest, key US company earnings misses or just a bit of negative news (Boeing, Johnson & Johnson, Deutsche Bank, GE?) no shortage of candidates. Still watch out for a large scale A-B-C (green) as per my original thesis. For the record I am Long Gold and Silver off the Pennant breakout (Flag in the case of Gold).