S&P On Track 2560-2640

BarroMetrics Views: S&P On Track 2560-2640

The Upthrust Sell signal triggered on May 17 looks like being negated: I need only see a bullish-conviction close above 2418 to say that has happened.  That would confirm that the strategy suggested in “Trump & the S&P…” was correct.

Assuming we do see a bullish-conviction close above 2418, then there is a strong probability we’ll be seeing 2560 to 2640. If we do see those prices around end July, early Aug, then we may have a possibility of a top.

In the meantime, I’ll take the view of ‘long or out’.

FIGURE 1 S&P 18-day Swing

Need for Public Participation

BarroMetrics Views: Need for Public Participation

Top S&P?

I had considered the sideways move in the S&P, commencing Jan 2015, to be a distribution pattern. The only fly in the ointment in this view was the lack of public participation. One of the characteristics of long-term tops is a massive investment by the public.

Well, with Trump’s election breakout on Dec 2, 2016, I needn’t worry about that aspect. Public participation has come back (see Mom and Pop Investors Are Behind This Historic Market Rally, 2017-02-28).

So, are we on track for a high in 2017?

So far – but I’d like to see the S&P get a move on to reach my price targets, optimally 2640 to 2560 (basis cash); my time targets are 2017-07-15 to 2017-08-11. Beyond that, I have another set of dates 2017-11 to 2017-12.

Apart from the S&P price and time objectives, there’s one more event I’d like to see take place: I’d like to see the St Louis Fed Reserve, Asset Monetary Base (AMB), start a sustained down move by the end of this month. The AMB move South is not necessary but would be an optimal factor.  (FIGURE 1)

(NOTE: I’ll be in Singapore this week so that the blog’s publication schedule will be interrupted).

FIGURE 1 Asset Monetary Base

 

Trump & S&P: Uptrend Ending?

BarroMetrics Views: Trump & S&P: Uptrend Ending?

On November 18, Trump’s election to the Presidency started a rally in the US stock market. True, the weekly volume and range have dropped in this upmove. Before QE, I’d have said that the drop characterised a top in the making. But with QE, we have seen a persistent uptrend unaccompanied by robust volume and range. Effectively, QE placed a floor below the markets.

Figure 1 is a weekly chart of an S&P (CFD) showing:

The difference between the trend up prior to the congestion that began on 5/22/2017 and the start of the Trump move on 11/11/2016. You’ll note that the mean range dropped from 43 to 36 and volume declined from 84M to 62M.

Figure 2 is the daily chart showing an 18-day Upthrust Change in Trend Pattern. Even if the pattern fails, we should see prices test the Primary Buy Zone at 2331 to 2320 (Maximum Extension comes in at 2304).

Normally, I’d take the Upthrust signal. But, given the situation with QE, I’ll wait until I see a confirmed change in the 18-d trend before looking to adopt a shorting strategy. That means I want to see:

  1. A momentum signal starting with a breach of 2320 (what I call an LCC – three consecutive bars making lower lows [inside days are ignored for the 3-day count]); and
  2. Acceptance below the Maximum Extension at 2304 (calls for a bar opening above the top third of the day’s range and closing below the bottom third where the close is below 2304. Also, at least half of the bear-bar’s range needs to be below 2304) and
  3. Most important, seeing nine consecutive bars whose ranges are below 2320 (what I call the WPC).

FIGURE 1 Weekly S&P

FIGURE 2 Daily S&P

 

 

Impact of French Elections Results on EC

BarroMetrics Views: Impact of French Election Results on EC

The French elections are over. With Macron in place, can we say that Frexit is dead and buried? After all, the pundits say that one of the reasons he won was because the French want to stay in the EC.

It seems to me, the threat is there – just dormant for the moment – ready to raise its head unless Macron delivers on his promises. But, that is easier said than done.

Let’s have a look at the challenges facing him.

Firstly, his party, En Marche, needs to win enough seats in the elections on June 11 and 18 to pass his program. The first poll by Opinionway suggests En Marche will not win an outright majority and will need a coalition to govern – casting doubt on whether Macron can deliver.

Opinionway projects:

  • 240-286 for En Marche
  • 200-210 for centre-right Republicans and their allies UDI
  • 15-25 for Le Pen’s NF and
  • 28-43 Socialist Party (down from the current 280).

Secondly, he has promised to improve the French economy. Two of the fundamental planks are:

  1. Reducing Government expenditure from the current 56% of GDP. Here he’ll face resistance from the far left and far right, the Unions and some politicians. To date, all attempts to slash spending have been defeated.
  2. Persuading Merkel that his demand for less austerity is a request by a fiscally responsible state and not one from a spendthrift nation. To do that, he needs to reduce Government spending.

The internal challenges are linked, and unless he can overcome them, the door is there for a Frexit party to walk in 2022.

In the meantime, the EC has to face the German elections on September 24 and the Italian elections, possible in 2018.

For traders, those dates are a long way away. So is the EUR likely to move North or South against the major currencies? Yesterday’s blog, “Impact of French Election Results on ECImpact of French Election Results on EUR” set the short-term picture. Let’s see which way that goes before we guess the longer-term outlook.

Impact of French Election Results on EUR

BarroMetrics Views: Impact of French Election Results on EUR

I was wrong: I thought Macron’s win would give the EUR one more up day. Instead, we saw the currency head South from the time my platform opened for business.

So what now?

Turning first to the technical aspects. I’ll use the EURJPY as a proxy for the EUR complex.

Figure 1 shows the 12M Swing. I see this as a Market Profile pattern seeking to establish a sideways congestion between ‘A’ and ‘B’. The current price action bounded by ‘a’ and ‘b’ is seeking to form the congestion’s Value Area by establishing a swing low at ‘b’. When complete, we’ll see a move to ‘A’. But, an acceptance below ‘b’, suggests at least a retest of ‘B’ and perhaps its breach.

Figure 2 shows the 18-day price action. You’ll also observe the gap created following the first round French elections; you also see that the Primary Sell Zone of ‘c’/’d’ held yesterday’s move south.

A bearish conviction close below 122.93 will suggest at least a test of the 114.84 to 116.00 Primary Buy Zone and probably its breach. A bullish conviction close above yesterday’s high (124.48) suggests we will see a test of ‘A’ in Figure 1.

Tomorrow, I’ll consider the challenges facing Macron since his success or failure in meeting them will impact the survival of the EC.

FIGURE 1 12M EURJPY

FIGURE 2 18d EURJPY

French Voting Turnout Favours….?

BarroMetrics Views: French Voting Turnout Favours….?

Tracking the numbers voting I read that the turnout so far is said to be the same as the first round. If so, the turnout favours Macron.

So what can expect from a Macron win?

May 8: we should see a strong rally in the European Stock indices, especially the CAC and Dax.  Will the rally continue into next week? I am not too sure – indeed, I’d say it’s only a 50-50 bet that it will. Here’s problem as I see it.

Macron (or Le Penn) does not have enough seats in the legislature to carry out his policies. Yet, the markets have been behaving as if a Macron victory will guarantee reform. (See Figure 1 DAX Daily). It seems to me we’ll probably see selling pressure coming into the European indices after Monday. If the selling does come in, the probability is we’ll see a retest of 12000.

What about the EUR pairs? Similar story: strong rally Monday, followed by a break possibility.

So, the safe trade is long EUR pairs and European Indices Monday. Then monitor to see if a sell signal transpires.

Figure 1 DAX Daily

Backfire Effect

BarroMetrics Views: Backfire Effect

I received a couple of emails and one comment against my assertion that Macron would probably win the French Elections. Before I comment, I thought a brief excursion into the ‘Backfire Effect’ would be in order.

“The ‘backfire effect’ is a name given for the finding that, given evidence against their beliefs, people can reject the evidence and believe even more strongly” (Rational Wiki Backfire Effect).

Can Le Pen win? Of course. But, as a trader, I would not be taking a position on her success. Here’s why:

  1. She failed to win the first round, even though she had the best conditions for her campaign, viz, the terrorist attack just before the voting commenced.
  2. French polls, unlike the US and UK, have been remarkably accurate.
  3. Based on their findings, Le Pen can only win if there is a 50% abstention rate. While possible, the rate is unlikely. The polls have the rate at 25%, in which case, Macron will win.

So how am I going to the elections?

I’ll be focusing the EURJPY – win or lose for Macron, this pair should offer opportunities. But, I’ll need to see the result and wait till around 9:00 am HK before I am willing to devise a strategy.

Non-Farm 2017-05-05

BarroMetrics Views: Non-Farm 2017-05-05 

As expected, the FOMC meeting left rates unchanged. In fact,  in its statement, it said little outside expectations. As far as market reactions go, it was a non-event.

The next event for ‘inflexion week’ are the Non-Farm Payrolls due 8:30 am EST on Friday.

Expectations:

  • Consensus:  185K
  • Consensus Range: 150K to 225K
  • Unemployment Rate Consensus: 4.6%
  • Unemployment Rate Consensus Range: 4.5% to 4.6%

One thing the FED made clear: it feels a need to raise rates twice this year and a need to change its balance sheet program. I expect the balance sheet announcement to made in December 2017. So, that leaves only the timing of the rate rises. The FED has signaled it wants one in June, so that leaves only the final rise to determine.

If the rate rise is to occur in June, then Friday’s data will have to come in at least within consensus, especially given the 98K number last month (expectations were for 175K).  And, given my view that the job numbers are driven by FED needs, normally I’d say that my confidence rating for a consensus (and above consensus) number would be 8 (where 0 is ‘no confidence’ and 10 is ‘certain).

This month there is, however, an additional wrinkle. Studies show there is a correlation between the ADP month to month trend with the Non-Farm month-to-month.  This month’s ADP came in at 177K (consensus 170K) BUT down from last month’s 263K.  If the indicator is on track, then we should see a Non-Farm number below 98K.

So, we have a conflict between my two indicators. My resolution is an easy one: I’ll go with my gut with an allowance for the ADP signal. This means I’m looking for a number between 150K to below 175K.

Such a number will probably produce a ho-hum reaction in the USD and US stock market.

Let’s see what happens.

(Message for Michael Hack: Please see my comment to your request posted at ‘Trading A Fundamental Event)

The French Elections

BarroMetrics Views: The French Elections

The results are in, even before the elections are held: Macron will win. He will secure 64% of the vote – and he has been endorsed by Fillon and Hamon.

So, is there any chance of Le Pen winning? If she does, what market reaction can we expect? If she loses what market reaction can we expect?

I must admit to not following French politics as closely as I follow the US and UK. Consequently, I don’t have a feel for the French outcome. The bookies say Le Pen is a 13/2 chance. Are these odds true? Because I don’t have a feel, I’ll assume they are.

So, what can we expect to see if she loses?

EUR and European stock markets up. If the first round results are anything to by, the move North should be something to see. I expect US stocks to follow suit. (Figures 1 to 3)

The more interesting question is: how will both asset classes react if Le Pen wins?

Undoubtedly, the EUR and the CAC will dive. I expect the FTSE and DAX to follow suit. The US? I am not so sure. It did follow the European bourses following the first round results. But, we didn’t have the Non-Farm ahead of the 1st Round as we do this time. Will a Le Pen victory overturn a poor Non-Farm?

What will I be doing on this occasion? Probably standing aside, but I’ll make up my mind closer to the event.

Figure 1 CAC Daily

Figure 2 DAX Daily

Figure 3 EURUSD Daily

Figure 4 S&P Daily

Budget Deal?

BarroMetrics Views: Budget Deal?

I am commenting today rather than tomorrow because it looks like the markets were correct about the potential of a US Government shutdown.

Last night, Democrats and Republicans agreed on a USD 1t spending agreement.  The bill needs to be passed and signed off by Trump by Friday, May 5.

The agreement has something for both sides. For the Democrats, money for funding the National Institutes of Health (Obamacare), and continued funding for federal government activities. For Trump, there will be increased spending for the military.

Because of the Democratic support, Trump does not need to worry that the House Freedom Caucus will upset the deal like they did the Health Bill.

Once thing is certain, it doesn’t look like Trump, despite all the promises to the contrary, will be doing much to balance the budget. This spending bill will clearly increase rather than decrease the deficit.

So far as the markets are concerned, it’s unlikely the news will have much impact.