Trading the Bounce

[aus_trader]

So yesterday I posted this in the Gold forum:

View attachment 103559

Is inflation, moving forward, going to be an issue for common stocks?

If rising inflation creates a response from the Fed. with regard to rising yields, probably.

When rates last started to rise in 2018: in January 2018 the 3mth sat at a yield of 1.5%+/-. By July 2018 it sat at 2%. By October (when the stock market started to sell off) it sat at 2.4% +/-. The 30yr Bond went to just under 3.5%.

Historically that is a very low yield. The market has little to no tolerance for rising yields, which, could very well happen if inflation is once again adjudged to be a risk. The Fed. reversed its tightening posture with regard to yields and the market recovered in early 2019.

So the end of last week saw moves in Gold, Silver, Oil and the 30yr Bond. Now these are single day moves. At the moment, it is simply a fluctuation and nothing to rebalance your portfolio on. However it is something worth watching simply because there has been an increase in the financial 'media' about inflation.

It is not however being overly discussed by non-finance persons.

View attachment 103560

Inflation is one of those phenomena that can be created out of 'belief'. If enough people believe; and start acting on that belief, there is the potential (if the underlying circumstances, viz. credit expansion are present) to drive almost a self-fulfilling prophecy.

Unfortunately the above chart is of too short a time frame to really give much information as a comparison.

View attachment 103562

So we have (above) Silver, Industrial metals (Copper, etc) 20yr Bond, US Dollar and Energy. I probably should have added Agriculture to that also. I used XLE as USO is somewhat broken atm.

This is what I will be keeping a close eye on moving forward. Plotting the relationships as ratios also tends to clarify the picture (information) with regard to these relationships.

On the above, there would not seem to be an excessive threat of inflation currently. Yields are still low. Energy, historically cheap with current high inventory. This will change moving forward as the world has lost production. It remains to be seen just how much. The dollar is also stable atm.

Silver, although it has jumped...is still below its early 2020 high. Until it trades through that point, Silver is not signalling anything as far as inflation. If it trades through that high I would be paying much closer attention.

If inflation does move higher, it will (in my opinion) be because of oil and the damage to production inflicted by the Saudi price war. That would mean oil moving north of $70. To that point, I think the market would live with it. After that, I'm not so sure. Early moves signalling inflation will likely first show up in the Dollar/Bonds.

As to the virus...only a crushing, worldwide re-infection driving a second global shutdown (if that even happened) will see the 'bounce' fail and move below the lows already seen.

jog on
duc

Glad you are keeping a tab on inflation duc. It usually creeps up on you while not being aware of it...

 

[ducati916]

So a few more charts today:

Retail sales down. No surprises. Moving forward:

Online sales has gained traction. Traditional retail may never recover that lost ground.

Certainly in the market, those online/cloud based businesses are doing very well.

With a little prediction thrown in.

jog on
duc

 

[ducati916]

So on that 'inflation' trade:

Possibly in the future. But not at the moment. The US Dollar would need to weaken and/or Oil to move past $70 (my figure) before inflation will become an issue for the markets. The Dollar looks to have support currently. Oil also has support.

jog on
duc

However the COT does go some way to explaining the Gold/Silver relationship currently.

 

[ducati916]

Trading to trendlines etc:

ERX/FAS both at or slightly above trendlines. I like to see this as you want the 'support' of the trendline moving forward. Does it always work? No of course not.

DFEN still needs to get above that trendline as it may act as resistance.

jog on
duc

 

[qldfrog]

Woke up to stellar figures in New york sp500+3.5%, 4% for dow30
Putting this in perspective buy friday sell now and you have beaten bonds and term deposit for the next 2 years.....unreal isn't it
Mr duc leverage entries should have done well!
The other way to see that is borrow money at 2pc friday,and invest it in a dow30 index,,sell1/2 gain today and you have repaid your interest for next 2 years

 

[Student of Gann]

SP500 Minor Turning point is indicated for 21st May . Most likely Minor Top at 2975 or 3041* .

 

[aus_trader]

Woke up to stellar figures in New york sp500+3.5%, 4% for dow30
Putting this in perspective buy friday sell now and you have beaten bonds and term deposit for the next 2 years.....unreal isn't it
Mr duc leverage entries should have done well!
The other way to see that is borrow money at 2pc friday,and invest it in a dow30 index,,sell1/2 gain today and you have repaid your interest for next 2 years

Could have worked, yes. Beautiful in hindsight isn't it ?

Could've also been killed if the market fell as it did in any one of the days during the crash. In that case would be paying back the interest and lost principal over the next 5 years !

 

[qldfrog]

Could have worked, yes. Beautiful in hindsight isn't it ?

Could've also been killed if the market fell as it did in any one of the days during the crash. In that case would be paying back the interest and lost principal over the next 5 years !

what I mean with that post is that the price of money is completely out of wack;
as for betting, millions of people are doing this every day in casinos with worse odds.
Realistically , there are less chances to loose money now or in the last month than there was in january, august or December last year yet people were piling into margin loans like mad at the end of last year...
Outch :-

 

[aus_trader]

what I mean with that post is that the price of money is completely out of wack;
as for betting, millions of people are doing this every day in casinos with worse odds.
Realistically , there are less chances to loose money now or in the last month than there was in january, august or December last year yet people were piling into margin loans like mad at the end of last year...
Outch :-View attachment 103607

True, hence likes given. I wouldn't do it with money I can't afford to lose though

 

[ducati916]

Almost time to call time on the question of the 'bounce', but not quite.

Obviously the market is still below previous highs. Therefore it cannot be a new 'trend'. However with the majority of the market above the 50DMA and moving towards the 200DMA, there will be support moving forward.

The real test will be when a rising 50 meets a falling or sideways 200. That 200 will be the Bears Alamo. If stocks break the 200, the bounce converts to a trend.

So the QQQ is already over it:

The SPY still below.

There will likely be an increase in vol. as we hit that area in the SPY. With the majority of the sectors over their respective 50DMAs however, that should result in the SPY crossing back into Bull-land, at which point, the bounce is a trend.

jog on
duc

 

[qldfrog]

Bring it on

 

[Smurf1976]

View attachment 103557

So far this looks at least plausible, reached 2979 then turned down.

So if we do get the top on 29 May or thereabouts then what happens beyond that?

Decline as in we're talking about a 10% pullback?

Or decline as in it's mainstream headline news and seen as a major crisis sort of decline?

 

[ducati916]

SPY approaching 200SMA

Forming an ascending triangle with the 20SMA and 200SMA. Whether it resolves this week or next is the question. So to help in that decision:

Junk Bonds. Risk on. Not back to a Bull market (still a long way below the 200) but if you can buy this, you can buy stocks.

Again, bullish.

Why? The search for yield from Pension Funds, Insurance Companies, etc, will drive these markets and stocks, particularly those that pay dividends that are considered (a) safe and (b) growing.

Treasuries, while a safe haven, are starting to see a rotation back into the (above) risk assets.

So 'Risk On' is back on the table.

jog on
duc

 

[qldfrog]

SPY approaching 200SMA

View attachment 103647
Forming an ascending triangle with the 20SMA and 200SMA. Whether it resolves this week or next is the question. So to help in that decision:

View attachment 103648

Junk Bonds. Risk on. Not back to a Bull market (still a long way below the 200) but if you can buy this, you can buy stocks.

View attachment 103649

Again, bullish.

Why? The search for yield from Pension Funds, Insurance Companies, etc, will drive these markets and stocks, particularly those that pay dividends that are considered (a) safe and (b) growing.

Treasuries, while a safe haven, are starting to see a rotation back into the (above) risk assets.

View attachment 103650
View attachment 103651

So 'Risk On' is back on the table.

jog on
duc

Hum would you offload urgently your gov bonds (Australian) or do you expect them to still be seen as protection by many burnt this year ?
I like the risk on with my systems, but still find it unreal for the world indexes to pretend that we are in the same situation as in what 2017 or so.even if we find a Covid-19 pill treatment tomorrow.
Noticed that last night both gold and market are Up..gold maybe due to relative fall of USD.
Let's wait for the end of the session...

 

[qldfrog]

Let's wait for the end of the session...

I mean to see gold vs market position in the US.
But risk is definitely back on

 

[$20shoes]

So far this looks at least plausible, reached 2979 then turned down.

So if we do get the top on 29 May or thereabouts then what happens beyond that?

Decline as in we're talking about a 10% pullback?

Or decline as in it's mainstream headline news and seen as a major crisis sort of decline?

I'll take the bearish flipside of the coin There's a lot optimism behind this move up from our March lows. My systems are on for taking shorter term trades but I'm starting to get cautious.

I'll keep this simple: From an Elliot perspective, markets advance in 5 impulse waves up. They then correct in 3 waves down (forget the infinite complexities, of which there are many).

If the move down to the March Lows was in 3 waves (an A-B-C pattern) that would be an entire correction complete. We could see an A-B-C and could say the correction was over. On we march.

However, the move down does appear impulsive: 5 waves down looks like a nice fit. If we subscribe to this possibility then its a fundamental rule that the entire corrective structure is not yet complete. It's possible that the move down was Wave A and this move up is Wave B.

If this is the case, then Wave B might carry us just above 3200 on the SPX. If we treat this as a zigzag pattern (this looks like the best fit), then Wave C would breach the March lows.

 

[Student of Gann]

SP500

 

[gartley]

A nice EW count developing in SPX at the moment. I suspect it may come to a conclusion end of this week or early next week and we might start a correction thereafter which will be joined be gold too. Interestingly we are 13 weeks along from the market top in February 5 down and 8 up, adjacent Fib no's. This needs to be confirmed by dynamic cycles which it has not done yet and I will post these if and when they confirm in the weeks ahead.

 

[Student of Gann]

22nd May SP500 Minor Top 2991 or 2998 .

 

[qldfrog]

Mr LeDuc must be busy
So so day in the US:slight fall 1pc of nasdaq, but Russel up, gold and USD up after previous session fall
SPY below 295can not break the 300.
VIX at 29.5 more or less stable in the last few days
We can read this as either consolidation or calm before storm
Real experts like @ducati916 might have a more informed view.