An Interesting Response

BarroMetrics Reviews: An Interesting Response

Last night the Jobless Claims dropped from expected 5k to an actual -15k, to a new recovery low of 320K. The Labour Dept did not report seeing a skew factor. The FED has been saying that the reduction in its stimulus spending is data dependent. If the claim numbers are translated into the Non-Farm numbers, we should see data that will lead to firming convictions of tapering beginning in September.

In this contest, two events are looming into even more significance then normal:

  • The FED minutes on Aug 21, 14:00 EST and
  • Non-Farm on Sept 6, 8:30EST

Technically, the S&P gave an Upthrust Change in Trend Pattern yesterday (Figure 1). This suggests, at a minimum, a 13-week line turn. Currently, the  E-mini (Nearest Futures Month) line-turn price is at 1538. (Figure 2).

I have cycle highs due in the 2nd/3rd week of September. Let’s see what the S&P does.

But what I found interesting in the price action was the response of the US$ and the 30-year bonds. The US$ and rates rose (30-year futures down) after the Jobless Claims – as we may expect if we take the view that the FED action has been placing a ceiling on the US$ and floor on yields. But then, we saw a V-intraday reversal on both the US$ and Bonds. (See Fig 3 and Fig 4. I have used the AUDUSD as the proxy of the US$ price action. If you look at the US$ crosses, you’ll see that US$ weakness occurred across the board).

That I did not expect and the price action seem counter intuitive to tapering.

Whenever something ‘unexpected’ occurs, I pay close attention. It may be that the US$ is signalling a high is in the making and the Bonds signalling a low (in prices). Figure 5 is a chart of the 13-week swing in Bond Futures (to Aug 14). A strong directional move began on May 3 and I was expecting continuation. Did last night’s price action put us on notice that a rally in price is about to occur? Rally targets for the Bonds would be in the 141’16 to 139’27 range.

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FIGURE 1  18-Day E-mini

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FIGURE 2 13-week E-mini

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FIGURE 3  6o-min AUDUSD

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FIGURE 4 60-min US

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FIGURE 5  13-week US

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