Mercury

Looks like PMs are turning back as predicted, just as stocks turn back bullish...

Looks like bad news is still good news... Buy the dips boys are back in, one presumes on the hopes that the PMI data will put pressure on the Fed to take yet more action. Given this turn is on the Fib 62%, my lead wave 4 turning zone, I have to assume this is a bullish signal and my lead scenario of a final wave up is in play.

2000 to 2008 (8 years) 2009 to 2019 or 20? (10 years?) NOT exactly a lifetime but certainly life changing for those caught the wrong side and those open minded enough not to let bias blind them to opportunity (either way). Data helps us but price action tells the tale.

Looks like FX markets like the Tory revised deal, maybe not so much for the Euro traders, although that is all short termism. The breakout on GBPUSD is similar to the one we saw on EURUSD recently, although it is stronger. A break of the second (parallel) channel line will be very bullish I feel.

Break lower here is an important juncture I feel. EURUSD set to break to higher highs. Patterns of late suggest that further stocks declines may accompany this, at least on Dax and FTSE100. If USDJPY follows suit then on the Nikkei as well...

https://www.bbc.co.uk/news/business-49919189 In the above article there is a statement of data, in the form of UK PMI being below 50 (i.e. contraction) but conversely a quote that PMI "has a tendency to overreact relative to reality"... We have lived through years of bad news is good because it drives central banks to push QE and cut rates, which fuels financial engineering (not the actual economy!) and the rich get richer. At some point the data is the data though right? At some point bad news is bad news right? I am wondering whether we have tipped into a period where the central banks lose control and markets stop hanging on their every word ("we stand ready to do whatever is necessary..." Blah Blah Blah!). I am wondering whether the PMI data is now more important than the US NFP and Fed policy? Jobs are last to go. Contraction in economic activity leads to job cuts, not the other way around. Then the job cuts and pay freezes fuel the crash. From a PMI perspective, Germany is in recession and Germany is manufacturing heavy as an economy. Therefore the EU is in recession (just not officially declared yet). If the UK has also slipped into recession (again not yet declared) and is more a services sector led economy and the US is following (Manufacturing and various other indicators are suggesting this is near, if not already upon us) then that is a lot of recession. Knowledgeable market participants are saying that China is in recession, certainly in manufacturing one and they are nowhere near shifting their economy to a consumer/services based one (pipe dream). Check out the current Real Vision China/Hong Kong series if you have access. Basically you cannot trust the official data. In such a macro situation, if proved true, is "buy the dips" and "never bet against the Fed" bias of the past 10 years still the right play? We might get one last hurrah but surely the time of the great Fed put is over... At some point the data is the data and bad news is just bad. The perma bulls who can't change their long held bias and swing with this are gonna get crushed. But that's how markets work, the Bears "need suckers to the the other side of their trades". And for the Bears, when right, they tend to be in the minority at the beginning so there are masses of suckers, which is why people who call it right get seriously rich in a Bear market. The analyst consensus for US ISM manufacturing PMI of 50.1 is a clear indication of playing a game of keepy uppy. The people working in FS are desperate to keep the train on the tracks until bonus time. 50.1 after a 49.1 print the month before? You can just see their bosses screaming at them to just get it above 50. And then the big slap down because the data is the data and forecasts are bull (I use the term advisedly...). The consensus for the Sevices PMI today is 55.0 but why is the story not "hey that is down from 56.4 actual last month, why so gloomy? What happens if we get 55? It is still down. What happens if it is anything lower than 55? Oh Oh! But hey, "Just buy the Ffing dips!", err maybe no this time..? For the record I am "well Short" from the turns on Tuesday and holding to see which of my scenarios plays out (see my "are we there yet" thread for details if interested). I do not know which way this plays out (yet) but given the nature of the moves over the past few days the odds are shifting to the end game. A poor, maybe even as expected PMI today could be the final nail in the coffin. Interesting times!

GBPUSD version of a similar V-Bottom to that on EURUSD, except that this is on a wave 2 retrace rather than a true trend ending bottom. The wave 2 turned at the Fib 62% on a failed retest of the previous channel breakout zone and on PMD. The pair of parallel channels is holding well so far so a breakout of the upper channel line is the next test. After that we should see a strong move up in a wave 3 (actually already starting of course) towards a probably wave A of the large scale counter trend retrace.

Potential V Bottom resistance breakout coming up after a 1-2 retrace of the rally, which turned on an overshoot and rebound of the weekly supporting trend line. If this breakout out it cold run hard. Expect other pairs to follow suit.

While Stocks and USD seem to be moving bearishly PMs are, intuitively, going bullish. However unless we have just seem the definitive bull ending move on stocks (or perhaps despite this if it eventually becomes clear that this is the case) I see this bullish move on Gold and Silver as being temporary. It is probably either an A-B or 1-2 retrace to set up a large bearish drop. More likely the former in the case of Silver and the Latter in the case of Gold but could be an A-B for both. I posted on Silver in the context of stocks earlier as Silver has reached an important zone of resistance whereas Gold still had some way to go (clearly lagging Silver at present on the Bear move, or more bullish if you prefer...). Both did exhibit some potential turn and rally signals though as the charts below show. Technicals: 1-5 down PMD at the turn Silver at key support zone; Gold at the Fib 23%

US ISM PMI reading in at 47.8 (less than 50 is recessionary contraction). This after a 49.1 last month and against a vainly hopeful 50.1 analyst consensus (was that ever an example of FS industry bias or what!). Net result? Stocks dropped off a cliff, USD drops as well (I assume the idea is the Fed will have to slash rates now). I wonder what another poor US NFP might do...? Oh and UK High Street stalwart John Lewis does a radical management shake up to save costs...

And the FTSE100. My take big picture is that this index has already topped out and the July high was a wave 2 retrace so I do not expect a further ATH, that is for US large caps only (if at all). After that wave 2 (purple) high, occurring on NMD, on a clear A-B-C profile, and at the Fib 88% off the ATH, we saw a very strong bearish move to the wave 1 (blue). This carried on down after the US large caps turned and rallied earlier, which I think is significant (hold this thought). There was a gap on the move so we could anticipate a retrace rally to close it at a minimum and in fact the rally carried on to put an exact hit on the Fib 62% line, which coincided with a strong area of horizontal support/resistance. There is strong NMD at this turning point on the daily and shorter time frame charts. In addition the Death Cross has triggered again. It triggered before, was reversed and now is triggered again. This profile is typical for this indicator, the second trigger being the relevant one to signal a significant bearish phase (in this case a possible strong wave 3). My only doubt is that the rally up tot he recent turn is not in a classic A-B-C, although one can be ascribed to the price action, which, if correct would confirm to one of the golden ratio relationships for Fibonacci retraces (Wave C = 0.618 Wave A) but that is only corroboratory for me, such that the wave 2 (blue) scenario is definitely on the cards from a technical perspective but not conclusive at this stage. For those of you who place a lot more store behind MAs than I do it is noteworthy perhaps that while the MA200 provided great support up until June of this year that is breaking down now. For anyone who uses Bollinger bands you can see that the recent turn spiked through the upper band briefly and is now heading towards the lower one. A significant break of the lower band could be interesting... In big picture terms I can see a scenario where the FTSE once again turns later than the US large caps and potentially even breaks past the wave 1 (blue) low or retraces very close to it, before making any relief rally. Such a scenario would be very bearish in my view but this is something to track for now not prejudge. The next few days and weeks could be very instructive in determining which scenario is more likely. To summarise then my lead scenario is for a wave B (green) bearish move followed by a higher high but not an ATH to complete the wave 2 (blue). However if we see a lower low that the wave 1 (blue) or a close test of that support zone then I might revert to a scenario where the wave 2 (blue) is already posted.

USDJPY put in a strong retrace rally but fell short of a higher high, effective ST double top with another test of the Fib 50% and the ST channel line (pink) on NMD. Now appears to be turning bearish again as stocks do likewise. Perhaps we are also seeing DX turn bearish and if it does that would be a double drive for this pair, which should drive it much further and likely faster than other USD pairs, in line with my lead scenario road map. I can't yet rule out another test of the daily chart pennant line (blue) so stops are just above the previous high.

Here are the Dow charts for good measure. Here I do see the Dow as making the Fib 62% more clearly BUT the rally phase is much more complex and indicative of a retrace rather than a motive on this index vs the others. While it is possible that the Dow could peak a bit earlier than the Tech heavy SP500 and especially the Nasdaq, it does give more credence to the final high being already in. If this is the case the we could see a lower high retrace on this market after a further drop than the SP500 and Nasdaq as the final rally phases resolve. That's all too far down the line yet but, for me, worth keeping in mind as price action evolves.

Didn't up date stocks at the weekend as there were too many scenarios in play and no indicative resolution (classic do nothing and wait situation). However with the first day and a half of price action 2 lead scenarios for US large caps (Dow and SP500) have kicked back in as follows: The current move is bearish in a 3-4 retrace, which when concluded should prime the pump for a final wave 5 The recent ATHs are the end of the Bull and the whole move down and up since then has been a strong 1-2 retrace that has mow turned into a wave 3 down There are a few other scenarios including the market just turns up from here and carries on I guess but the other are so complex that I am not tracking them seriously at this point, also other markets do not concur but there are some serious players out there peddling these more complex scenarios. I stay focused on my lead 2 but will focus this post on my #1 scenario, which I feel shades it, just. Looking at the SP500 charts I have the following: ATH in July on significant NMD, which is why the end of the Bull scenario is credible. In addition there was an ending channel set up. The bearish drop was straight down, very like a wave 1. The rally has been in an A-B-C form to what amounts to an effective double top. Chartists typically look for 2-3 months gap between tops for them to be credible double tops and this just about counts. So the Sept top could be a wave 2 retrace as it was a lower low and we also have NMD at this turn. The price action since the turn has been quite chaotic as bulls and bears slug it out. On the 4H we can see it more clearly with an initial channel breakout on a price gap followed by a gap closing retrace rally, which produced an effective ST double top but lower high. There followed a lot of whip saw price action but as of today I think it is tracing out a series of A-B-Cs in a complex retrace move over all. The low from Friday looks to me like a wave A and the rally since then (in A-B-C form so far) has hit the Fib 62% and rebounded back down. So if this turn holds and survives US open then I would expect it to test the Fib 50% at a minimum, which would be at a Wave C to Wave A equivalence. This is not a nailed on relationship and the Fib 62% offers a stronger zone of support for me. If we consider sentiment drives, what might we expect to see as correlations? Well PMs rallying - check and possibly USD falling? Certainly I would like to see USDJPY falling at least - check. I am short of the wave B (brown) turn on the Dow rather than the SP500 and Short the FTSE100 as well.

Lower low and short term support break on the cards? Bearish set up still holds sway for me, at least for the short term. Coincidentally Silver looks like it is about to put in a relief rally, Stocks and PMs do seem to be short term correlated at present.

Almost inevitably the USD did indeed retest my upper channel line at 9900 and so far has been rejected back down with a short term 1-2 retrace and drop. Let's see if this is finally the turn, it needs to be as a breakout here signals exactly the opposite (notwithstanding a fakeout).

Haven't posted on this market in a while but have been tracking it through what I think could turn out to be a Flag/Pennant consolidation. There are alas a number of scenarios to a retrace/consolidation end and turn, including a test of the support zone around the 7500 mark but before that a possible lower supporting trend line is currently in play , which would make this move a Pennant. The whole move can be seen on the daily chart as a series of A-B-Cs, fairly classic for a consolidation phase of this nature. At this point I cannot say whether this is a 3-4 retrace or a Flag/Pennant consolidation but on balance I think the set up favours the latter. Either way a rally would be indicated. The second price gap was closed recently, which was the minimum I was looking for. At this point I don't think the final one will be as that would suggest a more bearish scenario (Not yet IMO). The 1H chart shows the 2 trend line tests and rallies away. Today's is on very strong PMD after what looks like a clean 1-5 wave C (blue) to complete the retrace (see daily chart) to the wave C (Pink). A break above 8400 would seem to be needed to confirm the turn, although a short term 1-2 bearish retrace would also be usual before a stronger rally away. After that I would be looking for a break of the upper pennant trend line. Looking at the weekly chart I see the whole move down off the ATHs as an A-B-C retrace that ended with that Triangle breakout. The fast rally left behind several gaps, one of which is on the original rally, yet to be closed? If that is all correct then the next rally should exceed the first one (i.e. a new ATH). We could see a double top if no one gets over exuberant enough to break that resistance level. However if the current Pennant set up holds, and the Pennant marks the halfway point in a rally, then a projection of this halfway points marks out a rally top at circa 21600 (could say 22000 round numbers with an exhaustion spike, which of course could spike well through this area and return back within it to begin the inevitable bear market that will follow. For now though, if this is a turn and rally (and as always one has to guard against another leg down scenario at a minimum, if not a total capitulation to the Bears) then a lot of pointage is on offer for a very low exposure.

Fib 62% and NMD at the high still holding sway for me @DSchenk. Mini double top this morning then drop in a possible EWT1-2 (brown). I went Short with a tiny risk stop off the previous high. A lower low will result in me moving stops to BE to guard against a reversal. If this move holds, while GBP looks like it may go on a rally, then a wave A - B (green) is the likely scenario. If it reverses and breaks higher we are looking at a rally up to circa 7570+ IMO.

Looks like the 1-2 (brown) retrace I was tracking is occurring. So far this pair has gone according to my route map, once the turn occurred (at the last chance saloon of the Fib 88%) the move down has been steady and in what I see as a 1-5. We should now see an A-B-C retrace that may carry to the Fib 50% or a bit higher into the prior channel retrace zone. I have adjusted my upper channel line to hit the top at the Fib 88% more exactly, which then allows for an equidistant parallel channel line below where the recent turn occurred. This turn was accompanied by PMD but not a strong one, which is more consistent with a temporary retrace than a long term trend change. Originally my thesis for this pair consisted of a contrarian stance on the MSM dire warnings on GBP as a consequence of Brexit, which I believe to be spurious (albeit short term moves do seem to be impacted but I don't think it will be an issue long term). I felt that a bearish move on this pair would coincide with a strongly bullish phase for GBPUSD, and a weaker one for EURUSD. So far we have had that strong move on GBP but EUR seems to be lagging (i.e. hasn't triggered yet, so might anytime now). I expect that to reverse as GBPUSD has a bit more downside to go yet while EURUSD may go sideways or up from here (not ruling out a slight lower low yet). Whatever combination occurs on the main USD pairings of the Triad I expect a bullish relief rally on EURGBP but when concluded we resumption of the Bear market is my expectation and a wave 3 will be strong and last a long time, in defiance of the received wisdom as the Euro comes under existential crisis. I believe GBPUSD will also go down but not anything line EURUSD long term.

Gold and Silver have been following my road map almost perfectly since I caught the turn back down. IT is always useful to trading with confidence when you catch and hold the turns, although it is not easy and getting stopped out is always a risk but this time it has worked out well. Last time I considered we might see a retrace/relief rally that might post an A-B of a larger retrace bear move with the wave C then to come. So far that seems to be exactly what has occurred as we saw a turn and fast drop this week that is typical of a wave C. The fundamentals are stacked up for a long term rally in Gold/Silver and key resistance has been broken adding to that sentiment. However for Gold to really go on the kind of rip people are talking up some major macro circumstances need to be in play: more economic uncertainty, whether via political risk or recessionary risk (and typically high levels of inflation, which we do not yet have); uncertain interest rate environment (typically low rates is good for Gold bulls); Gold out performing stocks (the S&P500), which really means stocks falling. Of late Gold has seemed to be fairly consistently, inversely, tracking stock moves... And medium term a lot of money managers will have been under pressure (call it twitchy if you like) to bank good profits from the recent rally, which seems to be happening. This feeds on itself as fear of loss of all those juicy profits kicks in, markets are chiefly moved by sentiment and that sentiment can be somewhat irrational, when considered in the light of the bigger picture. At this point I tend to go over all my analysis to see if I am missing something that might smell of a Bear trap. I would not want to consider adding to my Shorts unless I was confident the risk of a major reversal (AKA Bear trap) was low. Going back to the Weekly set up I have the following on the charts: An A-B-C down to the Winter 2015 low and a turn on strong Positive Momentum Divergence and at a long term supporting trend line. A-B-Cs are generally followed by strong 1-5 motive waves in the opposite direction that extend beyond the start of the A-B-C (i.e. a fresh all time high). A clear 1-2 retrace (purple), followed by a smaller 1-2 (pink) than retested the long term trend line again. A Head & Shoulders reversal pattern and a breakout of the associated neckline. The rally wave (1 blue) made it all the way to an important resistance zone (red line) and then turned with a pair of bearish candles (see zoom in chart for more details). Zooming in on the Weekly (2nd chart): I can see that the Purple and Pink wave 2s retraced to the Fib 76/78% zones, common to get deep retraces in a Triangle pattern, which is made from the LT supporting trend line and the neckline. You can see that pair of bearish pin bar candles more clearly at the wave 1 (blue) turn, which was followed up with a third this week as the wave B kicked in. Given all that it would not be unreasonable or unusual to see this first significant rally retrace to the Fib 50%, deeper is unlikely, that would start to negate the long term rally scenario. The Fib 50% is coincident with the H&S neckline. It is a classic of charting techniques to see a neckline retested before the next major phase of the long term move back in the direction of the original breakout (rally in this case). On the Daily and 4H charts: The rally up from the prior triangle breakout contains a pennant that exactly marked the halfway point. This was one indicator that helped me pinpoint the turn. Another was the Negative Momentum Divergence and also overbought oscillators. There was a narrowing channel encompassing the rally from the Pennant, which was broken and then that break resistance zone was retested but failed this week in what I believe to be an A-B move. Stochastic hit over bought on the wave B and now both Stochastic and RSI are trending down. On the 4H chart you can see that the wave A (green) looks like it was in a A-B-C form, then followed by a 1-5 wave B (sort of the reverse of normal but not a problem). The wave B was contained in a nice parallel line channel, the break of which I signaled as a Short opportunity a few days ago. There was also NMD at the Wave B (Green) Next up would be a break of the key medium term support at 1480 and I might expect a pennant at some point if this is a fast wave C. The break of the support is a Shorting opportunity but the draw down potential (where you have to place your stops to avoid a temporary reversal) could be large. Perhaps a safer approach is to wait for a pennant and trade the breakout of that (or sell the rallies on the short term charts and move stops quickly maybe). My target remains the 1360 area around the neckline and Fib 50%. One watch out occurs on the 1H chart in that it is possible that the market bottomed yesterday in a short term wave 1 and has already commenced an A-B-C retrace, which could reach as far as the Fib 50%, although the 38% is also a good candidate. Might depend on what happens with US large caps over the course of next week. In fact if we do see such a retrace the turn back down would offer a good Short opportunity and in such a scenario the draw down risk on the key support break would be minimised as the retrace would have already happened. Net: I expect a continued bearish phase that could be a sharp drop in a fast 1-5 with pennant OR could post a wilder A-B-C to match the wave A. Once the neckline is achieved I will be ready to think Long again and this one could be a massive up trend. However this would suggest that stocks are keeling over and beginning a very long drop. I do not see a scenario where Stocks keep rampaging higher and Gold does the same. I think the 2011 rally was the end of that.

Possible late turn on the USD DX basket at the Fib 88%. There is one additional scenario that would see another test of my up-sloping channel line (circa 9900 at present) for a final wave 1 top but for now this is looking promising.

USDJPY hitting an important resistance area on the Fib 76/78% horizontal zone plus a retest of the previous channel line. A turn down in USD plus a bearish phase in stocks would be a big push down for this pair, especially after the overnight bearishness on the Nikkei.

Promising turn up off the weekly supporting trend line, early days but other turns occurring as well. Another false dawn or finally a change in trend? Let's see...

Wouldn't we all but the hard part is spotting all that and knowing when it has ended. As it happens I fear the FTSE100 is playing on GBP moves, which is, to me, only ever a short term driver and typically where there are no other drivers. Therefore I would be mindful of a potential reversal of the rally now, especially as other indices are not following suit and the Nikkei went the other way on its last trading day of the week. US open will be the deciding factor here I think although if we do get that GBP retrace and turn into a rally I have outlined in another post then that might be added negative impetus to the downside on the FTSE100. I am also expecting a short term rally on Gold/Silver, which might come in correlation with a similar move down on stocks and possible a drop on USD but over all I am Bearish USD and PMs in the medium term (the latter has already made its turn) and 50/50 on stocks with a slight edge towards another rally before a reassessment of where we might be int he cycle. If I am right about Stocks being in an ending wave 5 phase then whip saw price action is likely to continue and we may see several wild spiky moves yet. As I write the FTSE100 has just hit the Fib 62% whilst other are relatively subdued, which I find interesting...

I wonder if the Saudis also see future price pressure due to a global glut and shift away from Oil as a core source of energy in the long term. https://www.bbc.co.uk/news/business-49848068