GBPCAD 8:50 07-15 Update

BarroMetrics Views:  GBPCAD 8:50 07-15 Update

Final blog in the series of updates.

The bottom line: if short, I’d be looking to exit Monday morning. The ideal scenario for an exit:  an early morning pullback to the Primary Buy Zone of Figure 1 (bottom of LRB -exit shorts).

Then a move to new highs that provides momentum divergence in the LRBs – this provides a setup for new shorts.

Figure 1 shows the 60-min Linear Regression Band. It suggests we’ll probably see new highs after a pullback. This scenario will be proven wrong:

  1. if we see new momentum highs without a retracement or
  2. if the pair accepts below 1.6435 without making new highs.

If we do see new highs, what is the next resistance zone?

  1. Figure 2 has a Primary Sell Zone at 1.6670 to 1.6654
  2. Figure 3 has an FTP zone 1.6565 to 1.6690

So, at this stage, I’ll be looking for a sell zone around 1.6654 to 1.6690. As the Monday price action develops, the 15-min will provide an extension zone. I’ll be looking for the 15-min to provide confluence to confirm the 16654 to 1.6690 zone.

Unless the price movement fits one of the LRB exceptions, when prices enter 1.6654 to 1.6690, I’ll be looking for momentum divergence and then a sell trigger. The initial stops will be above 1.6690.

The above completes the analysis update for the July 12 presentation.

I received a query that fits this context. If I am looking to sell again, why don’t I just hold onto current shorts?

Because: the reason for the current shorts is gone. The price action is suggesting higher prices. I’d rather cut and then see if I a sell-setup takes place at higher levels or (if no new highs occur) upon a breakdown.

FIGURE 1 60-min GPBCAD

FIGURE 2 60-min GBPCAD

FIGURE 3 290-min GBPCAD

 

 

 

GBPCAD 20:10 07-14 Update

BarroMetrics Views: GBPCAD 20:10 07-14 Update

It looks like we’ll see, tonight, the 1.6530 to 1.6565 zone.

Figure 1 shows the 15-min chart with the sideways zones. Usually, a bearish conviction bar below 1.6509 will suggest the high is in.

However, Figure 2 (the 15-minute with Linear Regression Bands) suggests we’ll see new highs before the end of this minor up move.  For this reason, I am expecting to see a pullback to the Primary Buy Zone of the LRB (bottom zone marked by the red and black lines); followed by a new high into the 1.6530 to 1.6565.

Acceptance below 1.6464 will negate the new high scenario for today.

I’d prefer not to sell unless I see a setup in the 1.6530 to 1.6565 area.

I’ll do another update tomorrow morning.

FIGURE 1 Zones Sideways

FIGURE 2 LRB

A Goodbye

BarroMetrics Views: A Goodbye

Has it been ten years?  Almost, I first started publishing this blog on November 1, 2007. I’ll stop publishing on Tuesday, July 19, 2017.

That said, the blog articles will be available until December 10, 2017. This will give you time to download any articles you may want to keep.

Thank you all for stopping by. I have made some good friends here, Baz, Chris, Jason, Thomas and too many others to mention. All the best with your trading, every success.

Turning to today’s entry: I’ll finish the commentary on the GBPCAD trade. At the July 12 presentation, I started the analysis, but we couldn’t see the beginning of the trade because the BoC’s figures came out at 22:00 Singapore just as the presentation concluded.

Those of you who attended will know I was looking for the BoC not to raise rates. I mapped out a strategy for the expected ensuing rallying. I also mapped a strategy if it did. In the latter case, I concluded that:

  • given where the pair was trading ahead of the number; and
  • given that I expected the daily range to be between 190 – 300 pips, I was not prepared to sell the pair on the news.
  • Instead, I said I’d wait for the rally.

The BoC did raise rates. The GBPCAD then fell; we saw 315 pip range for the day. So, yesterday I was looking for a rally.

Figure 1 shows provide two important bits of information:

  1. Acceptance above the blue 120% (1.6789, I’ll round that to 1.6790) tells me that the current structure, the 5-day swing downtrend, is probably over; breach of the 5-d swing high at 1.6975 will confirm).
  2. The red lines show the 5-day resistance levels.

Figure 2 shows the 60-minute chart with resistance levels. Yesterday, the GBPCAD moved into the bottom of my preferred zone, and I took the trade at 1.6473. My initial stop (hard) is above 1.6616; my soft stop is above 1.6577.

Yesterday, the GBPCAD moved into the bottom of my preferred zone, and I took shorts at 1.6473. My initial hard stop is above 1.6616; my soft stop is above 1.6577.

(By ‘hard’ I mean ‘the stop order is resting in the market’; by ‘soft’, I mean I’ll be looking to exit should I see acceptance above 1.6577)

I believe there is a 50-50 chance will see a test of 1.6530 to 1.6565 today to establish a congestion high on the 60-min. The congestion low is at 1.6354.

I’ll publish an update at 20:00 tonight Singapore time.

FIGURE 1 GBPCAD Daily

FIGURE GBPCAD 60-min

S&P Confirms the NASDAQ Signal?

 

BarroMetrics Views: S&P Confirms the NASDAQ Signal?

A 10% correction in the wind?

Before I begin – if you are planning to take part in Singapore, a caution: we have only 18 seats left. I expect these gone today. Do register early or you may miss out. If you do miss out, register for the live-streaming. (I prefer being present, but it would be better than missing out!)

Turning to today……..

An important event occurred: the S&P took the first step, of a two-step confirmation, to confirm June 29’s NASDAQ sell signal.

Let’s turn to Figure 1, NASDAQ, showing the 13-week swing (black line, quarterly trend). It shows that line will turn down at 5295. It also shows the S&P 13-week swing; its line turns down at 2315 (both basis cash)

Figure 2 shows the 18-day swing and 5-day swing (blue line, weekly trend). The 18-d shows no change in trend, whereas the 05-day shows the breach of the uptrend. There is a Normal Change in Trend pattern. But, the filters, momentum, time and price have yet to be triggered. Consequently, we may still see a rebound in the 5-day generate buy signal.

Figure 3 shows that the 18-day correction will nudge into 13-week corrective territory at 2366 Penetration of 2323 will confirm that we are seeing a 13-weeek correction. A move into the the ’80-120′, 13-week correction band (grey lines) is important. Why?

Because a 13-week correction suggests an 18-day impulse move. Of course, an  18-day impulse move encompasses a 05-day swing trend down.

By combining the two, the stats suggest a minimum 10% correction, giving us a price target of around 5300 to 5310.

In the two-step confirmation, the second step will be a tandem, bearish conviction-close (of at least normal range and volume).

Will we see that tonight? We may, we have NFP at 8:30 EST. Expectations are for a figure of 170K with the unemployment rate coming at 4.3. The consensus ranges:

  • NFP 140k to 200k
  • Rate 4.2% to 4.4%

Let’s see what happens.

FIGURE 1 13-week NASDAQ & S&P

 

FIGURE 2 05-day and 18-day NASDAQ & S&P

FIGURE 3 18-d ’80-120′ Band

NASDAQ – Sell Signal?

BarroMetrics Views: NASDAQ – Sell Signal?

A friend of mine, Tom Wong (fund manager in NY), dropped me a line to say I was focusing on the wrong index. I ought to be looking at the NASDAQ: this index that will lead the decline because it’s been the one leading the rise.

He’s right.

Figure 1 shows a comparison since the last quarterly swing low. The NASDAQ has risen 26.77% while the S&P only 17.76%.

Figure 2 shows the current NASDAQ; Figure 3, the current S&P.

[The red lines represent the 18-day swing (monthly trend), the black ones, the equivalent of the 13-week swing (quarterly)].

Neither chart has generated a change in trend pattern. So, at this stage,  if we see a decline, I’m taking the view that we’ll be seeing a correction either in the 13-week or 18-day swings. Because of the Ray Wave count, I lean towards a 13-week correction.

If that proves true, what percentage correction are we likely to see?

Figure 4 shows the NASDAQ calculations. The sample size is too small to be reliable. Working with what we have, I’d say 13% to 19% (S&P around 10% – the sample size there is reliable).

What would I need to see to say that a correction is on the way? A bearish conviction-close in the S&P below the June 29 low (2405) by Monday, July 10. By ‘bearish conviction-close’, I mean:

  • an open no lower than in the top third of the day’s range.
  • a close no higher than in the bottom quarter of the day’s range.
  • with a true range of not less than 60.

The S&P bearish conviction-close would confirm the NASDAQ heads up generated on June 30, 2017.

I’ll look to trade the 18-d correction following the first 13-week leg down. The strategy means I’m sidelined for the 18-day, first leg down.

Image credits: safehaven, optuma

FIGURE 1 NASDAQ & S&P

FIGURE 2 NASDAQ

FIGURE 3 S&P

FIGURE 4 NASDAQ Stats

July 15 Topping Scenario S&P

BarroMetrics Views: July 15 Topping Scenario S&P

In two weeks, we’ll be entering that time zone when a possible top in the S&P may take place: July 15 to August 11.  It doesn’t look like my price targets will be met; I was looking for a high around 2560 to 2640. If in fact, we fail to attain the price targets by the time window, what would that mean?

  1. The top won’t take place; or
  2. If it does, it’s likely to be top marking a correction of around 10%. Assuming the 2454 high is not exceeded, 2208 would mark the end of the 10%  correction.
  3. The correction would then be followed by new highs. I have some dates in mid to late October. Under this scenario, the October dates may mark a long-term, bull market top.

If the corrective top scenario is correct:

  • I’d like to see a drop into the Linear Band Buy Zones (bottom red and black lines in Figure 1). The red vertical lines mark the corrective time window from which the rally into July 15 – August 11 will come. The corrective price zone comes in at 2322 to 2290.
  • The rally into the July 15 high will be on low volume and range.
  •  Ideally, the topping pattern will form below the Linear Regression midline. Given the position of the Linear Regression Bands, the July 15 cycle high will come in below 2454.
  • My best guess for the topping price range is around 2400 to 2435.
  • In summary:
  1. The S&P drops to 2322 to 2290 from July 3 to around July 11.
  2. It rallies to 2400 to 2435 by July 15 to August 11.
  3. It then drops 10%.

Will the topping picture turn out as I expect? Probably not. But, by having a clear picture in mind, I have a better chance of working out if a top is likely as we move into July 15.

Let’s see how events play out.

Image credits: Scenariosusa

Figure 1 S&P Cash 19-day and 73-Day Swing

(Chart courtesy of Optuma)

Recession Warning Tools

BarroMetrics Views: Recession Warning Tools

First off, thank you! Thanks to all those who took a moment to drop me a ‘get well’ note. It was very kind of you. My back is much better – still tender but at least the excruciating pain is gone. At least, I can sit! The anti-inflammatory pills, pain killers and ointment did their job.

Turning to today……..

…….. I’d like to look at:

  • Two tools that have served as advance warning signals of a recession to come; and
  • A new confirming tool.

The first is the St Louis FED, Adjusted Monetary Base.  The AMB shows the amount deposited by US banks in the Federal Reserve. At the moment, the FED is paying close to commercial rates. As a result, banks prefer to leave their funds with the FED rather than lending to Main Street – hence the lack of inflation. Once the AMB starts to trend down, we’ll be seeing money flowing into the economy. That will cause inflation to rise – based on FED history, faster than it will anticipate. It will then have to play catch-up with dramatic rate rises or face hyperinflation. Their catch-up leads to a recession.

Figure 1 shows the AMB. The signal I’m looking for is a breakdown that is followed by a strongly trending bear market. The bear trend will signal the release of funds to Main Street. As I said, that’s when we’ll see inflation rise and probably rise dramatically. There’s usually a 3 to 6-month lead time from the time the ABM figures to the time inflation is signalled by the CPI.

The next tool is the yield curve. In normal times, the longer-term maturities have a higher rate than the shorter ones. If the yield curve flattens and then inverts (long-term rates dip below short-term), we have a warning of a recession. I have attached a short piece by the FED that explains the indicator. (Figure 2)

Yesterday, FT ran an article suggesting the yield spread was sending an amber warning of a recession. Frankly, I think they are way ahead of themselves.

According to the FED, one of the most successful predictive yield models is the spread between the 3-month bills and 10-month notes. Figure 3 shows the spread. Yes, the spread is narrowing – the 10-year notes are ‘flat to down’, and the 3-month bills are ‘rising’. But, the current spread between the two is only 1.17 (St Louis Fed Reserve).

According to Attachment 2, with this spread, the probability of the yield curve correctly predicting a recession is less than 10%. That said, like the AMB, it’s an indicator I check regularly.

The final tool: one I was recently introduced to by Port Phillip Publishing. It’s the Baker Hughes Rigg Count of US oil and gas rigs.  Figure 4 is a chart of the BHRC with the recessions marked. Port Phillip says:

We have marked the years of US recessions…..We pay particular attention to the amount of time that has passed since the end of the last US recession — eight years. And the fact that the recessions seem to begin as the rig count is on the rise, rather than when it’s falling.”

My analysis of a chart of the BHRC and recession dates:

  1. This indicator lags the recession starts, and
  2. It serves as an excellent confirmation tool.

That said, oil prices are down 18% in 2017 and oil rigs are on the rise. The chart may be saying ‘get ready’.

So why am looking at recession indicators? Usually, the stock market tops before a recession. But within the current context (given the exuberance of the US stock market) we may well see a recession before the stock market tops.

FIGURE 1 Adjusted Monetary Base

(Chart through courtesy of  St Louis Fed Reserve)

2017-06-28 Yield Curve Predictor of Recessions FED

Attachment 2: FED explaining of Yield Curve

FIGURE 3 10-Year Notes cf 3-month Bills

(Chart through courtesy of  Quandl)

Figure 4 Baker Hughes Rigg Count

(Chart through courtesy of Bloomberg)

 

Consequences Protectionism: Trade War – Black Swan? (2)

BarroMetrics Views: Consequences Protectionism

The image heading this blog fairly well sets out the general consequences, costs go up, supply goes down, and as a result, prices go up.

But, in the current context, there are two very consequences:

  1. Possible mini-trade war with US allies.
  2. A trade war with China

The tariffs would not be aimed specifically at China. As such, they would hit Canada, Germany, South Korea, Turkey and Mexico more than China. Undoubtedly, they would react in kind.

Also, the EU trade commissioner, Cecilia Malmstrom, has warned that the EU would have to respond.

If Trump does impose tariffs that affect China, can you see it not responding? I can’t. So, add China to the list above.

A world trade war, at this delicate juncture, could send stock markets tumbling at a rate that no amount of QE would halt.

Let’s see what happens.

Image credits: action institute

Trade War – Black Swan?

BarroMetrics Views: Trade War – Black Swan?

Firstly: we have the numbers for the live-stream! I’ll be sending out the registration link on Monday to all wrote in. Thank you. It will be a fab event. Even without Oanda (our joint venture partner), who will only start their marketing on Tuesday, we are half full for the session in Singapore.

We are already half full; and next week Oanda (our joint venture partner), who will start their marketing on Tuesday. So have a rosy picture for July 5.

Turning to day’s piece…….

As we near one of my possible cycle high dates, I was wondering what event might trigger a sell-off in the markets.

I spotted a possible issue today.

First the context:

For years, the Chinese-US been head-butting about unfair, Chinese steel exporting, practices. The US claims the Chinese are dumping cheap steel onto the world markets. It has been partially successful in stemming entry into the US by filing anti-dumping cases that have resulted in high tariffs. But, it also appears that cheap Chinese steel is circumventing US efforts by using third countries to export to the US.

The Trump Solution

Next week, the word is Trump will use a 1962 law to protect US steel interest:

He’ll declare that the threat to the steel industry constitutes ‘a threat to national security’.

Trump will be using a law passed in 1962 which gave US presidents broad powers to limit imports in the interests of national security. Most importantly, he can do this without Congress. Thus, Trump would achieve his most cherished dream: doing whatever he wants without Congressional oversight.

The word is we’ll see:

  1. A system of quotas and tariffs. Firstly, the steel imports from a country would be frozen at current levels. Then, any imports above these levels would be subject to punitive tariffs; and/or
  2. A broad set of tariffs on all steel imports.

The Consequence

Will have to wait till Monday.

Hung Parliament!

BarroMetrics Views: Hung Parliament!

Well, folks, it’s confirmed, the UK has a hung Parliament.  What does that mean?

In the UK, a party that has 326 is said to have a majority – it can pass legislation with the support of other parties. A hung parliament occurs when a party captures less than 326 seats. The options for the Conservatives are:

  • Form a minority government (May will need the support of a minor party for each piece of legislation) or
  • Form a coalition (there will be a formal agreement with a minor party for support

Only the Democratic Unionist have professed support for May. The problem is the DUP won only 10 seats. So even with their total support, the Tories have only 315+10 = 325 i.e. one short of the needed 326.

What about the Liberal Democrats? It did form a coalition with the Tories in 2010.  I just can’t see Tim Farron working with May. Sure, politics form strange bedfellows. But, in this case, I think it highly unlikely – especially with May’s refusal to resign.

The conundrum that the Tories are in means there is only one other solution: another election. And, another election will bring more uncertainty into the marketplace. You know how markets abhor uncertainty!

For the trader, the problems stemming from the election produce a simple strategy. Find the appropriate GBP pair, look for a place to institute a trade and go short!