Currencies and stock's bounce is probably done

We were signaling a bounce at currencies. It took place already and drove stocks higher in last session as expected. It filled ES gap but now we think market will resume the bearish trend.

In any case the less probable scenario will be a run up to 1128 ES area.

Bounce for currencies (integrated)

A couple of ideas from currencies....

One of our favorite proxy for market (AUDUSD) has just filled its gap and reaching resistance levels. Notice also the rising wedge. Overall a nice bearish setup.

Maybe one of the most bullish FX main pair recently. Now ready for a retracement IMO.

You may recall this old post where we presented the RSI setup. It has worked very nicely ever since.

I hate to say it but.... they told us.

We have been talking about AUDJPY and EURJPY quite frequently since they were enlightening some worrying shades in this crazy-bull rally. It seems that on friday close they were already confirming moves. See these charts of them separated to see each performance and tell me if you can see what I was seeing: such a strong JPY (risk aversion currency) can't be foretelling much more upside in stocks.


See the picture EURJPY was showing on Friday (which is confirmed so far be Monday gap down). These signsamong others were negating the posibilities of ES surpassing 1043 on Friday, that is why we shorted that level.





JPY weekly view:


JPY daily view:




Same message coming from a weak AUD.



But there was more on friday. Remeber out junction point? There were two apparently decoupling (commodities and stock indices) instruments. My guess is that there is no sucha a decoupling but a leading move at commodities that may be signaling the way down for the rest of the market. Despite the huge rally last week these indices couldn't close above resistance and gap...


Commodities ETF, inflation corrected


One thing that does not match with these bearish ST scenario is credit markets still showing appetite for H yields. So keep an eye on it.

Indicators update

We have seen another irrational exuberance day today. Risk appetite was all over the place mainly commanded by a sky rocketing EURUSD (weakening dollar).
We also saw higher demand for High Yield bonds, Small Caps and Crude oil. All pointing the same direction.
Overall we can expect more risk appetite and dip-buying activity (yep , they never get enough) in theory but I sense (just a feeling) the game can change for a while very soon. Nevertheless we should trade over facts only, not gut feelings.

Aside of that, and with the purpose of enlightening the unobvious I found these charts quite worrying. Just for us to keep an eye on them tomorrow:


AUD/JPY update, as we were saying recently, the VST top continues to develop indicating risk avertion on these pair



Though most bonds markets rallied yesterday, TNX tanked strangely, same story on 5yr T bonds. As of now is just a heads up. Let's watch it.
Also see how EURJPY stayed below resistance despite rally on stocks....

EURJPY - Wanna see a movie trailer on Sunday?

Regular readers know we like watching currencies (and specially EURJPY) at openings to gauge coming market action. This week we might see a resolution af current EURJPY structure which you can see at the chart below. Actually we had a potential double top/ bull flag that needs resolution in the short term. Let's see if Sunday opening can give us some clues about this movie's next scenes.
Enjoy

Both EURJPY and USDJPY just gapped down

This foretells a weak opening for futures

Fortune-teller

As a continuation of my previous study on currencies and its relation with stock markets I wanted to show some findings on EURJPY. As I mentioned about EUR, we can use some currencies correlation to confirm moves in stocks. Moreover EURJPY can sometimes spot equities moves in advance,under the form of divergences, so we can use it as an early indicator. In the chart we can see a comparison between EURJPY and SPX. Have a look at the red segments which are signaling the SPX "lagging" price action. Those are the moments we need to spot to avoid fading EURJPY with our trades on equities; and ideally following its footsteps for a profitable trade.

Regression day II - Completing the move

As we recently posted , many instruments have broken its mid term regression channels. We spoke about the technical relevance of that fact and also described at the charts commentary that after the 1st step (channel breakdown) 2 more steps normally follows to complete the move :

• 2- Retest the channel or any relevant resistance
• 3 - Break down again

This is what we saw today at many instruments (see updated charts below)


EURJPY


EURUSD


S&P100


ES





Another perfect example at QM (oil future)



Conclusion:

The various indications we were observing about more weakness in the bulls run have been confirmed today in various equities sectors as well as oil and gold. We see this move as the beginning of a pullback inside a bullish main trend. To believe this pullback has become some serious mid term bearish trend we need to see a daily close below ES990, which was very close today but is yet to be seen. There are quite a few technical arguments for the bears but need to gain consistence during next week for us to officially turn the mid term trend to bearish.

Currencies: who should I trust in?

Recently there has been some talking about currencies since we experienced a very short term decoupling from Euro and equities which normally go together. Moreover, many traders refer to USD indices to look for clues since in the long run it is inversely correlated with US stock markets. Also JPY played a very important role during last bull market since it was the currency used by carry traders to benefit from the lower Japanese interest rates.
I myself like to watch currencies for confirmations or sometimes early signs of moves in equities but to clarify a little their behavior I pulled these charts out so we can see how these instruments played during the last years and ideally how to take advantages of them in the future.



Close up view:




So, in general I prefer to watch the Euro future (or its correlative at Forex: EURUSD ) for clues. Also EURJPY is very interesting as a leading indicator, I will try to post some charts later.

Daily wrap up - "Regression" day

We finally went back to some bearish dynamics today after a number of the signs of weakness we have been observing matured. As an interesting technical hint, many of them broke their rising Regression Channels, which is meaningful from the mathematical point of view by itself, but moreover since it happened the same day to many of the instruments whose performance we believe is linked
We think this is a pullback which can eventually become a mid term trend change if ES makes a daily close below 990. In any case the main trend underlaying is still bullish.
The plan for today is stay on the sidelines and wait for a confirmation of this move after FOMC anounces.

ES


EURJPY



EURUSD



SP100

Plan A & Plan B

Since market continues to show strength today I traded long setups until the close. I am expecting a continuation of this bullish trend tomorrow and the trading plan continues to be buying the pullbacks and fading support levels until the facts prove this strategy wrong.
Nevertheless there are many conditions that any decent bull should be aware of:

• Extreme bullish sentiment among retailer investors (ISEE=150), which is normally faded by the market .
• Possibility of a double top on some important indices so I will be watching the following levels and indicators to anticipate a potential sell off if those levels are not taken out.

"Toppy" levels:
DJ Transportation




Nasdaq Comp



Indicators to watch: (signaled moves would correspond with a bearish move in equities)
USD


EURJPY- Important resistances zone (previous highs)



ZB- 30 year T Bonds Future