MCP Market Update: January 22nd, 2019 – The Year Ahead: Hope springs eternal

by Mars Capital Partners | Jan 22, 2019

In 2018, we were looking for a topping equity market, rising rates and strengthening US dollar as central banks reduced liquidity. Global fundamentals of debt, deflation and slowing growth will continue to provide headwinds throughout 2019.

The question is how long can the CB’s kick the can down the road? At what point do global markets call their bluff as market maker in chief? One thing is clear, central banks are manufacturing a world of increased societal acrimony through financial repression – how long can they continue to support the banking hegemony with disregard for societal inequality?

Key Macro Themes for 2019:

Global equity markets either topped in 2018 or are in the process of topping. We have a potentially complete 5 wave impulsive rally from the 2009 lows that terminated in September 2018. However, due to the corrective looking 3 wave pullback into major support, we cannot confirm with confidence that the bigger picture rally is over. We expect a year of increased volatility as investor hope and faith in central banks is tested by the headwinds of debt, deflation and slowing economic growth in a distorted market.

In summary, 2019 is likely to be a trader’s market with high volatility across macro asset classes.
– we remain defensive equities and swing trading tactically;
– bullish bonds in a deflationary environment;
– bullish the US dollar (except against the Yen);
– bearish the Swiss Franc;
– bearish commodities; and
– longer term bearish gold and silver

I’ll start with equities – namely the S&P. I’ll spend some detailing what I see as the key scenarios to watch. The Dow, Nasdaq and Russell are likely to follow similar patterns, so these scenarios will apply more broadly to equity markets.

Our long term outlook is that the entire post 2009 rally in equities will be fully retraced. While I am bearish the longer-term, at this time, a bull and a bear case both remain possible. Both cases and potential roadmaps are outlined below.

Firstly, the bull-case. This will likely be more of a traders’ market than an investors’ market with increasing volatility. Our benchmark SPX has a potentially completed 5 waves up from the 2009 lows. What we do NOT have is confirmation of a change in trend so the potential remains for new ATH’s as shown below. As previously stated, we need to see 5 waves down from the highs to confirm a change in trend to DOWN.

So far the SPX bull case has 3 waves down of equality into structural support and what appears to be an impulsive rally off the lows. This implies either a completed 3 wave corrective decline for ALL of wave 4 or “part” of a larger corrective decline in a bull market. So in the bull-case, there are three possible paths to new ATH’s. In Elliott Wave terms, a correction in 3 waves is either:
– Black count: a completed zigzag correction for all of wave 4 and we push directly to new ATH’s in wave 5; or
– Blue count: completed wave A of a 3-3-5 (A-B-C) corrective Flat where we are now in wave B to test the ATH’s; or
– Pink count: completed wave A of a multi week / month 3-3-3-3-3 (a-B-C-D-E) triangle before a final thrust to new ATH’s in wave 5

From a near term perspective, the ES appears to be in an extended 5th wave after breaking above our 2645 resistance last week with targets in the 2700-10 area. Once this impulse wave completes for wave 1 / A, we should expect a corrective 3 wave decline prior to the next move higher to retest ATH’s. We are not chasing this rally but rather looking for a turn, the nature of which (impulsive or corrective) will setup our next swing.

The SPX Bear Case assumes that the 5 wave rally from the 2009 lows is complete and we have begun a bear market. There is little evidence to support this structure unless markets trade back below the December lows.

Given the initial 3 wave decline, the most likely bearish structure is a “leading diagonal – falling wedge” as shown below. The lack of 3rd wave price action suggests even this decline would be highly volatile (read choppy whipsawing) and take months to play out – this potential structure is invalidated at new ATH’s.

Another potential bearish SPX / ES structure (lower probability) is a rare expanding leading diagonal which requires an immediate bearish turn from the 2700 resistance area.

Given the number of price paths that are still valid/possible at this point in time, we expect volatility and traders should remain nimble and trade tactically.

The Dow shows the same structure from a big picture perspective. With only 3 waves down from the highs, we must allow for a potential push to new ATH’s while December’s lows remain in place.

Similarly, the Nasdaq indices only declined in 3 waves of equality into structural support opening the door for an eventual push to new ATH’s. The rally from recent swing lows appears impulsive for a direct push to new ATH’s or part of a more complex correction for wave 4 as per the SPX.

From a near term perspective, the NQ is tracing out what appears to be an extended 5th wave approaching resistance in the 6936 area (61.8% Fib retracement). The near term structure counts best as an impulse up from the lows as shown in the bull count. There is the potential for an extended wave (c) as shown in the red bear count but this appears lower probability. Either way, we should be fast approaching a near term correction so buyers beware.

The Russell 2000 also declined in 3 waves of equality into structural support. While there are enough waves to complete the post 2009 impulsive rally, we must allow for the potential of another push towards new ATH’s (green count).

Near term, the RTY appears to be tracing out the final waves of an impulsive rally from the cycle lows. Near term resistance resides in the 1500 area. The impulsive nature of this rally suggests it is either wave 1 or A of a larger rally to retest the ATH’s once its corrective decline is complete.

Another index we track closely is the Transports. It suffered a sharp 3 wave decline into structural support before rebounding strongly. Once again, given the corrective nature of the decline, we cannot discount the potential for new ATH’s as shown by the green count. This bullish count is likely invalidated below the December lows.

The VIX has been crushed since the Powell Pivot. Given the 3 wave nature of the most recent rally, it is likely that volatility continues to decline towards cycle lows.

We have been tracking the HYG and JNK indices for risk sentiment. Note the sharp rally since the Powell Pivot – this warns us that investor’s “faith” in central banks remains undiminished. We are fast approaching the weekly 50 sma which has held all rally attempts – key near term inflection point but the rally off the lows appears impulsive (bullish).

AAPL may provide an important tell for global growth – we have an impulsive (bearish) decline from the September highs that broke trend support but held its 200 week sma from where it is attempting to rotate higher. We should expect at least a counter-trend rally in AAPL here. A break below the December lows would be very bearish.

To the global equity markets and the ASX200 has two primary counts. Like the SPX, we have enough waves in place to complete 5 up from the 2009 lows and the decline appears impulsive into structural support. We are now entering the Fib retracement range from where the bears will need to make a stand. The bullish count is more complex and allows for a retest of the ATH’s before reversing sharply lower. This is not a time for complacency – the big picture risks far outweigh the upside potential for the Aussie stock market.

The Nikkei 225 appears to have completed 5 waves up from the 2009 lows. The decline from the highs is only in 3 waves of equality so far. While there is a small possibility of a push to marginal new highs, risks remain to the downside for the Japanese stock market.

The NKD is currently backtesting its break of support and 50 day sma. So far the decline from the highs is a corrective 3 waves of equality and bears need to extend this down into 5 waves to avoid new highs. The price action is too choppy for clear near term direction.

The European markets also bounced off structural support. So far we only have 3 waves down from the highs and this needs to extend to 5 waves down for a bigger picture change in trend. The DAX has strong resistance in the 11400-500 area from where the bears will need to make a stand. Immediate trade back above 12000 would invalidate the impulsive bear count.

To the Bond markets and we are a very important inflection point. So far we have a corrective 3 wave rally in rates from the July 2016 lows across 10’s and 30’s. Rates need to extend higher immediately into 5 waves up above the November highs to invalidate the bearish potential. I have highlighted both bull and bear cases for reference. Due to the impulsive nature of the recent decline from the highs, the probability is that rates are likely going to new lows consistent with the deflationary outlook. We are bearish rates (bullish bonds) until proven otherwise by a rally above the November highs.

The 30yr highlights the muted rally from the September 2017 lows and impulsive decline from the wave C highs consistent with a more bearish outlook.

The 10yr shows the same potential wave counts with 3 waves up of equality from the July 2016 lows. A strong close below 2.60 would be consistent with the more bearish rates outlook. The bearish count is wrong at new cycle highs which would indicate the bigger picture trend had turned UP for the long term.

The 5yr is more complicated as the rally in rates failed at our 161.8% Fib extension followed by an impulsive decline. Rate Bears have control while we remain below the September highs.

The bond futures tell the same story. The ZB shows a corrective 3 waves down from the ATH’s. This structure remains very bullish bonds while the October cycle lows hold. Ideal buying levels are closer towards 141-142’20 against cycle lows.

The ZN (TY) shows the same structure with 3 waves down from ATH’s and an impulsive rally from the lows. This implies that the bigger picture trend is up for bonds with support in the 119’23-120’15 area. Trade below the October lows would invalidate the bearish count.

To the FX markets and the US dollar strength continues. We remain bullish the DXY looking for a retest of the 2017 highs. The question is whether we rally immediately while holding recent wave (ii) lows (blue count) or we need a deeper correction towards the 92-93 area (red count) before the wave C higher can reassert itself.

The Euro shows the same structure having turned down from our initial 1.16 resistance as we target a break of 1.12 that should lead to a retest of the 2017 lows. The alternate green count requires a push higher towards 1.19-1.20 before the bear trend can reassert itself. We remain bearish the Euro.

The Yen remains trapped within its triangle consolidation since its 2015 lows. Note the compression in the weekly RSI below. Despite historic levels of QE and asset purchases, the BOJ hasn’t been able to move the needle on the Yen. As we’ve seen many times in the past, volatility compression ultimately leads to volatility expansion. Ideal targets for black wave E of (B) are in the 89.50-90.50 area for the Yen. We expect this triangle to break (likely higher) in early 2019.

Similarly, we are very bearish the Swiss Franc as we look for a break out of its 8 year consolidation. We are bullish the USDCHF near term against recent swing lows (red E). A break of recent lows targets the 0.94-0.955 secondary support zone from where we would look to get bullish once again.

The Aussie dollar has rallied nicely since its flash crash lows. Our upside targets for this counter-trend rally remain higher towards 0.744-0.760 as we look for the bear market to reassert itself. The only thing that is likely to reverse this decline is China Stimulus and trade war resolution. Until these themes change the Aussie$ remains bearish from a big picture perspective.

The USDCAD has rallied correctively from the wave C lows in what we expect to be wave A of an A-B-C advance. We are near term bearish against recent swing highs but not with a great deal of confidence. This pair has been range bound since the 2016 highs. With only 3 waves down from the 2016 highs we must assume the decline was corrective and new highs is likely (green count). Trade back above 1.38 will “lock-in” a corrective 3 wave decline implying a push to new multi-year highs.

The Singapore Dollar provides the clearest Elliott Wave structure with 5 waves up from the 2011 lows terminating into the 2016 highs. We are looking for evidence of a bullish turn for the USDSGD for wave (c) of B up to retest the 2016 highs. Strong support resides in the 1.334-1.344 area for a turn.

To the commodity markets and Crude Oil has pushed higher in wave (a) in what we expect to be part of a counter-trend rally. We expect this rally to be part of a larger wave B correction before wave C down. Ideal wave (c) of B targets remain in the $61 area. The rally off the 2016 lows is clearly corrective in 3 waves. The decline for the September 2018 highs is clearly impulsive so we would expect another wave lower of similar magnitude. We remain bearish CL from a bigger picture perspective.

Near term, the recent CL rally from the low is clearly impulsive and likely only wave (a) of an a-b-c correction higher. Ideal upside targets for wave (a) are 56-57.

Brent Crude shows the same overall structure as we appear to be completing wave (a) of an a-b-c rally for B in the $70 area before wave C down commences.

Natty Gas continues to trade within a larger decline with a corrective 3 waves up since the 2016 lows. We remain bearish from a bigger picture perspective and continue to look for new cycle lows in NG as long as the wave C highs hold to the upside. A break below 2.50 support would likely confirm our bearish view.

Near term, the NG bears need to break below the trend channel and ideally trade below 2.50 to confirm a change in trend to down.

To the PM’s and Gold remains trapped in its multi-year triangle. Our long term price objective remains in the $600-700 area for Gold. The question is only whether we go directly down from our $1380 resistance (black count) or push higher first towards $1500 for red wave B.

Near term, Gold turned down from the low end of our sell zone as it broke down from its triangle. It could still be a bull flag with ideal upside targets in the 1320-25 area. We do not yet have confirmation of a change in trend.

Silver also broke down from our 16.00 near term resistance and the rally is only in 3 waves so far. Trade back below 15.00 would imply the trend remains down with new lows on deck. Bulls need to hold the 13.60 support area or risk a breakdown towards the $8-10 area in an impulsive 5th wave decline. The bullish case is looking for a wave C higher towards the $20-22 area. Near term bulls need to reclaim $16 first.

Our bigger picture Silver buy zone targets remain in the $8-10 area.

In summary, 2019 is likely to be a trader’s market with high volatility across macro asset classes.
– we remain defensive equities and trade tactically;
– bullish bonds in a deflationary environment;
– bullish the US dollar (except against the Yen)
– bearish the Swiss Franc
– Longer term bearish gold and silver

MCP Market Update: October 8th, 2018 – Yields Break

by Mars Capital Partners | Oct 8, 2018

Last week we finally saw US bonds break major support (TLT 116) that we have been watching closely. This is a major turning point for risk assets in a debt fuelled world and in particular, its effect on Emerging Market debt which when combined with a strengthening US dollar bodes further trouble ahead. Also of note was the Nasdaq’s bearish reversal on a failed retest of the ATH’s as warned last week. All in all it was a bad week for risk parity strategies.

The TLT broke critical 116 shelf support and accelerated lower as expected invalidating the near term bullish counter-trend potential. We have long been bearish bonds (since the July 2016 highs) and we expect this trend to continue. While we may see a re-test of the 116 break-down level the trend remains down from a bigger picture perspective.

TLT Weekly

Yields broke higher above key resistance in what should be a powerful wave (iii) of 3 rally shown below. Only a strong close back below last week’s break-out would alter this bullish yield count.

TYX Weekly

The SPX / ES broke near term trend support and declined directly to our intermediate support in the 2865-75 area posted last week. While we could see a near term counter-trend bounce early this week the intermediate trend remains down – confirmed with a close below 2865.

ES Daily

The near term SPX count appears to be an impulsive decline into support to complete either wave (a) or (i) down. Any counter-trend rally should be limited to resistance in the 2905-15 area before another wave lower as shown below. However, support remains support until broken so a close below 2863 will help trigger the next wave lower towards 2800.

SPX H1

ES shorts are at new cycle lows – warning sign as bulls embrace the highs.

The Dow / YM also broke near term trend support but remains well above key trend and 50 day sma support in the 26000 area. Of note is the bearish momentum divergence at last week’s new ATH’s.

YM Daily

YM traders also embracing the rally…

The Nasdaq indices formed non-confirmation highs with the NDX making marginal new highs which was NOT confirmed by the broader Nasdaq Composite index. Last week we warned…
“The near term NQ_F bear case (lower probability but great R/R) is that we are completing a retest of the swing highs in an ending diagonal wave (c) of B/2 red count – it may be worth buying some cheap puts on a retest of the highs. A strong close at new ATH’s will invalidate this count.”
The NQ made marginal new ATH’s but was unable to sustain the break higher and reversed 350pts lower last week as expected breaking the 50 day sma long term support in the process. This break in structure suggests a retest of the 200 day sma.

NQ Daily

Our near term NQ count held up well knowing that we should allow for a marginal new high and hence the focus on near term puts. Any counter-trend bounce should be capped by the 50 day sma and Fib resistance in the 7540 area. We remain bearish given this break of key trend support with targets near the 200 day sma. While it is unclear whether this initial decline is complete we should be aware of the potential for a counter-trend rally within the larger bear market.

NQ_F H1

The Nasdaq Composite did NOT make new highs and broke key near term support. Major trend and 200 day sma support resides in the 7500 area. Note that there are enough waves in place to count the rally from the 2016 lows as complete – note the bearish momentum divergence at the recent swing highs.

Nasdaq Composite Daily

The Russell 2000 / RTY provided early warning to the market weakness as it quickly declined below bullish 1686 support highlighted last week. The bulls were unable to reclaim the 1733 resistance and quickly broke down towards the 200 day sma and wave (3) breakout support from where you would expect buyers to emerge. A close below the 200 day sma would add to the bearish structure.

RTY Daily

Russell shorts continue to pile in which helps explain recent relative weakness.

As noted previously, the VIX is attempting to rotate higher from base support after breaking its near term declining wedge.  The VIX really needs a close above 20 to gain upside momentum. Note the Weekly RSI continues to hold trend support and is attempting to rotate higher. We continue to expect higher volatility in the coming weeks and months.

VIX Weekly

VIX traders only know one way – short vol

To the global equity markets and the Nikkei 225 failed to sustain its new cycle highs. While the structure appears to be a 4th wave triangle thrust to new highs (ending 5th wave) we need a decline back below 23000 to confirm that this rally is not extending. Cautiously bearish against new swing highs.

NKD Daily

The question for me is whether this Nikkei 225 rally completes the bigger picture 5 wave rally from the 2008 lows. IF so, we could see a large decline back to the wave 4 extremes in the 15000 area. Too early to call but I am aware of the possibility.

Nikkei 225 Monthly

The ASX200 turned lower from the 50 day sma as expected but remains above previous swing support. We remain bearish looking for a test of the 200 day sma (6180) or rising red trend support (6130). A break of the rising red trend support would be very bearish.

ASX200 Daily

The European markets continue to stall at resistance as the major rounding top pattern remains possible. So far the near term DAX decline is only in 3 waves into 61.8% Fib support. I have no reason to own the European equity markets given the fundamental backdrop. The declining neck line support for the potential H&S resides in the 11500 area. The DAX has been unable to break back above its declining 50 / 200 day sma’s which should probably be our bull/bear line in the sand.

DAX Daily

The near term DAX count is more complex with the bearish red wedge challenging the impulsive looking rallies (green triangle count). This chart appears messy but the key message is that bulls need to make a stand here to avoid a larger breakdown towards 11700.

DAX H4

Not surprisingly, EEM continues to stair step lower towards a back-test of the green trend channel breakout. While it may find near term support here, the bigger picture trends of rising rates and a stronger US dollar will continue to pressure emerging market equities. Until something fundamentally changes (eg., resolution of China trade dispute) the bigger picture trend remains down.  Trade back above $45 would be bullish.

EEM Weekly

To the Bond markets and we finally had a clear break of our 116 “line in the sand” support. Last week we said, “a strong close below the 115-116 shelf support will likely see an acceleration of the downtrend. Key inflection point here for US rates.” – we remain bearish bonds given this fast break lower with targets much lower. Only a close back above 116 would alter this immediately bearish wave count.

TLT Weekly

The 30yr (ZB) continues to impulse lower following its break of support. While we may see a re-test of the 140 breakdown area on a counter-trend bounce (not likely), the trend remains down until proven otherwise. Given the market’s general bearishness I will remain alert to a potential bullish reversal – in the meantime the trend is your friend. There is nothing bullish about this chart – lower lows and lower highs since the September 2017 counter-trend highs..

ZB Daily

The acceleration in ZB shorts is worrying but you can’t fight the trend until it bends.

The TY continues to break lower in its downtrend as the decline extends. Only a strong close back above the breakdown area and 119’00 would invalidate our bearish outlook.

TY Daily

TY bond traders remain heavily net short.

To the FX markets and US dollar strength continued as expected. The latest DXY rally appears impulsive so we remain bullish for at least a retest of the wave A/1 highs against recent swing lows. This is a very crowded trade.

DXY Daily

Near term the DXY trend has enough waves in place to potentially complete a smaller degree wave (i) / (a) but there are no strong signs of a top. Any decline back towards 94.30-94.60 would likely be an opportunity to add longs. The bigger picture trend remains higher.

DXY H2

The DXY appears to be another one-sided bet.

The DXY net position share of open interest is pushing multi-year highs once again.

Similarly, the Euro continues to decline impulsively from recent swing highs. The big picture trend remains down. The question is whether this recent decline is part of a larger corrective structure (green count) or something more immediately bearish.

EURUSD Daily

Near term the Euro has enough waves in place to complete its initial decline. Any counter-trend rally should find resistance in the 1.1600-1.1680 area before the next wave lower for (iii) / (c). We remain bearish the Euro as we look for a retest of the 1.1300 lows.

EURUSD H2

Surprisingly, Euro traders appear flat.

The USDJPY has stalled at our first resistance area (114.55-90) with enough waves to complete red wave (c). A close above 115 near term resistance likely sees a push higher towards our next targets in the 117 area.

USDJPY Daily

Near term the USDJPY may be forming a small degree H&S top likely confirmed on a break below 113.50 – this is highly speculative but I like the R/R for a potential near term top.

USDJPY H1

Yen shorts have spiked higher – prefer to fade this crowd.

The Aussie$ broke to new cycle lows last week after another failed rally attempt. The 50 day sma continues to act as strong resistance for this downtrend – there is no reason to buy the Aussie$ as it continues to trend lower into major 0.6830 support.

AUDUSD Daily

The AUDNZD should be completing a small degree wave (b) triangle prior to its wave (c) thrust lower towards 1.07 to complete its weekly wave B triangle correction – I continue to see this structure as bigger picture bullish with buy levels in the 1.07 area.

AUDNZD Daily

Both Aussie and Kiwi positioning remain at bearish extremes.

The USDCAD continues to frustrate as we fell short of our 1.2740 buy targets once again. What is becoming clear is that this decline from the June wave 1 highs is corrective (series of 3 wave counter-trend waves) so we will be looking for opportunities to get long this pair. I’m just not chasing it here. Bullish against recent swing lows.

USDCAD Daily

The near term USDCAD wave structure highlights the corrective nature of the decline within a broadening formation. Likely a very bullish structure on trade back above 1.3230

USDCAD H4

CAD traders have been whipsawed flat.

To the commodity markets and the precious metals pushed higher last week but Gold was unable to break out of near term congestion (1220-25 resistance) – it is difficult to be too bullish Gold given our stronger USDCNH outlook. May be best to allow for a decline towards our bigger picture 1120 buy zone.

Gold Daily

The recent Gold rally from Fib support does NOT look impulsive and could be forming a triangle.

Gold H2

I’d still prefer to see a capitulation in Gold longs.

Silver rallied more strongly than Gold but was unable to clear $15 resistance. The structure of the rally is not clearly impulsive and failed at the 50 day sma. No position for me here.

Silver Daily

One bullish potential for Silver near term is a leading expanding diagonal (rare) – I just don’t like the idea of shorting into long term support here. Near term Silver needs to hold the 14.20-35 area and clear 15.00 to gain upside momentum. Very speculative but Silver calls are cheap.

Silver H2

Crude Oil (CL) made new cycle highs following our impulsive rally structure and pulled back late last week for what should be a small degree wave iv within the larger bull trend. Trade back below 71.50 invalidates this near term bullish count and opens the door to more bearish potential.

CL H4

Natty Gas continued to extend its gains into Fib resistance as it attempts to break out of its corrective channel. Maybe a triangle? Still no interest for me here.

NG Daily

NG shorts slowly getting squeezed out.

Dr Copper continues to stall at Fib resistance – still no position or clear structure to trade against.

HG Daily

That’s all for now folks. Have a great week 🙂

MCP Market Update: July 1st, 2018 – Calm before the Storm

by Mars Capital Partners | Jul 1, 2018

Last week we discussed our thesis for a potential market top in risk assets in “Has the Music Stopped?”.  In Part 2 – “Calm before the storm” we examine in more detail the potential market structures unfolding in global equity markets. We remain tactically bearish equities as we start to see more evidence of a potential change in trend.

Last week, equity markets declined as expected with the market leaders (Nasdaq / Russell 2000) declining impulsively from new ATH’s providing further evidence of a tradable top in these markets. Bond markets continue to be range bound (within a larger bear market) while the US$ appears to be topping near term. This should provide near term support for the commodity complex within the context of a larger bear market.

From last week’s update…

“We now have a number of warning signs of a potential market top but we DO NOT yet have price confirmation of a change in trend (decline below the critical February low support). Our primary thesis remains that the bullish macro tailwinds that supported this post-GFC rally are turning into headwinds as liquidity is drained from the system, global debt is peaking while global growth is slowing. All the while, the Trump administration has engaged in a trade war with both its Allies (Europe / NAFTA) and Enemies (China / Russia). We see evidence of reduced liquidity as higher risk assets are being sold off (eg. Emerging Markets) and remaining liquidity being concentrated in the last bastion of “hope” of FAANG and the Russell 2000 – the problem is that technically, these “market leaders” are actually tracing out ENDING waves of the post-GFC equity market rally.”

We are now seeing increased evidence of a major market top where fundamentals, technicals and sentiment align… this is an important week for risk assets as tariffs on Chinese imports are expected to start July 6th – where Trump (the immovable) meets Xi (the unstoppable).

What we have:

What we do not yet have: Confirmed evidence of a change in trend – as defined by a broad based market decline (5 wave impulsive decline) that breaks the February lows.

From a big picture perspective the SPX continues to trace out the final waves of this rally from the 2009 lows which we expect to be fully retraced in the years ahead. The question is whether this market topped In January 2018 (red count) or requires a marginal new high to complete the rally (black count) – either way, our contention is that this market is in the process of topping and downside risks abound.

SPX Semi-log Weekly

Our preferred SPX case is that the market topped in January 2018.  The counter-trend rally likely topped in June and we should now see an accelerated decline through the February lows towards our 2250 measured downside target. This immediate bear case is wrong on a push to new ATH’s.

SPX Bear Case Daily

The alternate SPX case is that we are completing a wave (4) counter-trend decline prior to a FINAL push to new marginal highs. This structure assumes we are completing a wave (4) symmetrical Triangle prior to a final wave (5) push to new marginal ATH’s (blue case) or a false break of the February lows towards 2450-70 Fib support before a bullish reversal higher (green count). While not our preferred options, they remain possible so we must be aware of the potential. Either way, we remain bearish from a bigger picture perspective.

SPX Bull Case Daily

We continue to be tactically bearish ES looking for key resistance in the 2800-30 area to hold.  We do NOT expect the SPX / Dow to confirm the Nasdaq / IWM rally to new ATH’s.

ES H4

Traders remain net long but shorts are increasing.

The Dow shows the same bull/bear structure potentials as the SPX but relatively weaker given its exposure to potential trade wars and rising US$.

Dow Bear Case Daily

DJIA Bull Case Daily

The Dow futures (YM) remain range bound within a contracting triangle. While we could see a near term counter-trend rally towards 24500-868, we remain bearish looking for a break of the February lows. Trade back above the June highs invalidates this bearish count and likely sees a test of the ATH’s.

YM H4

Shorts increasing at the low end of the trading range.

Importantly, as highlighted last week, the Nasdaq indices (NDX/Comp) now have enough waves in place to complete its rally from the 2016 lows – new ATH’s have not been confirmed by momentum and we now have a small degree impulsive decline signalling a change in trend to down. Wave 5 thrusts from wave 4 Triangles are ENDING moves. We are now bearish the Nasdaq Indices against recent swing highs. Bears need to break strong support at the rising trend line and 200 day sma around 6600.

NDX Daily

The near term NDX count now shows an impulsive 5 wave decline from recent highs (signifying a near term change in trend to down) followed by a bounce off the 50 day sma. We would expect any counter-trend rally to terminate in the 7130-7200 resistance area before turning lower once again to break the 50 day sma (6950).  The bears then need to break strong support that resides in the 6600 area of the 200 day sma to continue its impulsive 5 wave decline shown below. The near term bear case is wrong above the June highs.

NDX H2

NQ shorts increasing off cycle lows.

Like the Nasdaq, the Russell 2000 (IWM) looks to have completed its 5th wave triangle thrust to new ATH’s potentially ending the rally since 2016. Last week’s decline into the 50 day sma appears impulsive so we should expect further downside next week that targets the 200 day sma as strong support. Note that momentum peaked back in October 2017. We need to see a strong impulsive decline that breaks trend support to signify a bigger picture change in trend.

IWM Daily

Interestingly, the IWM formed a monthly “shooting star” candle that requires downside follow-through next week to confirm the potential top… the Russell formed the same top in June 2015 as highlighted below.

IWM Monthly

The near term RTY count shows a completed 5 wave rally into new ATH’s followed by a small degree 5 wave decline into the 50 day sma support. Expect any counter-trend rally to find strong resistance in the 1675-90 area as we look for this market to turn down next week. The near term bear case is wrong above the June highs.

RTY H4

RTY traders remain very long at the highs – no shorts to be found

The DJ Transports continued to decline from our upside targets as expected. A break below 10000 likely targets 9500 (for green wave (c)) or potentially much lower towards 8500-8750 for wave (iii).

DJ Transports Daily

The Banks (BKX) continue to hold shelf support but are threatening to break down – still trading heavily (now below the 200 day sma) and warning of further downside to come.

BKX Daily

We continue to be bullish the VIX / VXX against the June lows as volatility compression leads to expansion. Note the bullish momentum divergence at recent swing lows which supports our outlook for lower equity prices – is this the calm before the storm?

VXX Daily

VIX traders are very short again…

As highlighted in last week’s update, AAPL may be our canary in a coalmine as June’s rally to new ATH’s has not been confirmed by momentum and we are starting to see evidence of a bearish reversal near term. AAPL’s worst fear is China disrupting its supply chain as a result of increased trade wars at a time when phone sales are slowing globally. Unintended consequences…

AAPL Weekly semi-log

To the global equity markets and we appear to be forming broad based tops throughout as highlighted by the ASX200 (SPI futures) which looks particularly vulnerable to a significant turn lower as we wedge into recent highs. Once again, note the recent momentum divergence at the highs. We are now looking for evidence of a bearish reversal in this market.

SPI Daily

We have been correctly bearish the European indices and in particular the CAC40 with the expectation of automotive tariffs and faltering banking system. We appear to be in a broad based topping pattern and while we may see a near term counter-trend rally we remain bearish against the 5555 highs as we look for a retest of the February lows. Trade back above 5555 likely sees marginal new cycle highs but this rally from the 2016 lows can be counted as complete with bigger picture risks to the downside. A push to marginal new cycle highs would likely be a gift for shorts.

CAC40 Daily

The FTSEMIB continues to show clear warning signs for the European markets after completing almost 10 years of range trading. Last month’s bearish reversal from key resistance is emblematic of the downside risks facing Italy right now. Bearish.

FTSEMIB Weekly

To the Bond markets and the TLT remains bearish from a bigger picture perspective having established a long term top in July 2016. Near term, we remain range bound as the counter-trend rally stalled out at the obvious 122.50 shelf resistance. We are now flat following the rally from the 116 lows. While we may see near term weakness, the intermediate structure continues to look higher towards the 61.8% Fib and 200 day sma (124.50-125) resistance zone. The bigger picture trend is down but ideal sell zones remain higher.

TLT Weekly

The long bond ZB futures show a completed 5 wave decline from the September 2017 highs. We are looking for a counter-trend rally to retest 147’00 resistance and potentially push through to 149 before turning lower again.   We are flat bonds looking to short from higher.

ZB Daily

Long bond traders remain flat in this range bound market.

As expected, the TY continues to climb a wall of worry but our sell zone targets remain higher towards 122’00-123’00.

TY Daily

TY traders reducing both long and short exposure while remaining net short.

To the FX markets and the US$ appears extended to the upside and may have put in a near term top at 95 resistance to complete wave (v) of A/1. We remain strategically bullish the US$, but are near term defensive as we look for a counter-trend decline towards the 91-92.50 support area before the next strong wave higher can take hold.

DXY Daily

DXY shorts have capitulated while longs embrace the rally.

Similarly, we remain bearish the Euro from a bigger picture perspective. Near term, the Euro appears to be trying to hammer out a low at support after completing 5 waves down from the February highs. Ideally, we are looking for a counter-trend rally higher that terminates in the 1.20-1.21 area before the bigger picture Euro downtrend can reassert itself. Strong trade below 1.15 may trigger an extended decline but I’d be wary of shorting into the hole here.

EURUSD Daily

Euro longs have capitulated while shorts press into the lows.

The USDJPY remains in a large triangle compression. This structure remains bullish US$ while 104.60 holds to the downside.

USDJPY Weekly

Near term, the USDJPY rallied from last week’s support zone keeping the bull trend in tact but I am wary of failure here in the 111.00-50 resistance area for a wave (b) high. The structure would look best with a wave (c) decline back towards our 107-108 buy zone against the 104.60 lows. This would be more consistent with our overall views of near term US$ weakness.

USDJPY H4

The Pound also appears to have hammered out a near term low with corresponding bullish momentum divergence at recent swing lows. Once again, we are looking for a counter-trend rally back towards the 1.3600 area from these oversold conditions.

GBPUSD Daily

GBP longs have declined to cycle lows.

To the commodity currencies and the Aussie and CAD appear to be turning higher from key support. The Aussie$ tagged our 0.7330 Fib support target and has attempted to rally. This is obvious near term structural support for the A$ so we are now looking for a potential bullish reversal for “at least” a counter-trend rally and something much more bullish?

AUDUSD Daily

Aussie$ bulls have now capitulated, opening the door to a rally

The USDCAD looks to have topped near term and now has two diametrically opposed counts from a big picture perspective. (i) We either completed wave (v) of 1 (green count) and last week’s bearish reversal started wave 2 down towards the 1.26-1.28 support zone before wave 3 higher OR (ii) this latest rally from the September lows was a corrective rally within a larger bear trend (red count) – triggered on trade below critical 1.206 support. Either way, we are near term bearish this pair as we look to see how the decline unfolds (wrong on close above 1.34).

USDCAD Daily

CAD shorts pressing into the lows. Likely caught offside with this reversal.

To the commodity markets and our Crude Oil short idea was wrong on last week’s push to new cycle highs. Despite Trump demanding lower Crude prices from the Saudi’s, the bigger picture market structure continues to be defined by higher highs and higher lows in the black gold (reflecting our view on stronger CAD). We must now consider the idea that the 2016 lows marked the end of wave (C) – and not wave 3 of (C) as previously thought. We are standing aside until we gain more clarity on Crude’s market structure.

CL Daily

While traders have reduced longs, shorts have plumbed to new lows.

Natty Gas continues to defy gravity but may be setting up a small degree H&S top on a close below the 50 / 200 day sma shelf support. Watching for a break but no position until we see confirmation of a turn lower.

NG Daily

Traders remain slightly net short with both longs and shorts declining.

Dr Copper declined to the top of our shelf support zone where we would expect the bulls to try and make a stand (key inflection point). Strong support resides in the 2.90-2.95 area – a break of which likely triggers a H&S decline. Careful being short in the hole here near term.

HG Daily

To the PM’s and Gold has now met our weekly 200 sma and trend support in the 1250 area from where we would expect to see a counter-trend rally higher for wave (E). We remain bearish Gold from a bigger picture perspective as long as 1380 holds to the upside (bullish above 1380). Our longer term targets remain lower towards $600-700 as we look for a triangle thrust lower in wave (C).

Gold Weekly

Near term, Gold has a cluster of strong support in the 1210-50 area where the bulls should try make a stand… we have no evidence of a tradable low as yet.

Gold Daily

Gold shorts increasing into the lows.

Silver continues to compress within its contracting symmetrical triangle while running stops either side. We are now flat as we look for a counter-trend bounce near term.

Silver Daily

Summary;

We continue to see an important alignment of fundamental, technical and sentiment indicators warning of a potential market top.

While we are beginning to see increased evidence of a bearish market turn with trend exhaustion for the leaders and fragmented markets, the February lows remain key structural support for the bulls.

We are tactically bearish equities, neutral bonds within a larger bear market, near term bearish US$ (while strategically bullish) and near term bullish PM’s within a larger bear market.

MCP Market Update: January 16th, 2018 – Blow-off or Acceleration?

by Mars Capital Partners | Jan 16, 2018

Reminder: As I will be on vacation from January 29th through to February 16th, we will likely miss updates for the 5th and 12th of February – apologies in advance

US equity markets continued to rally strongly to the point of rising exponentially over the first couple of weeks of 2018 driven by the dovish Fed, Trump tax cuts and investor exuberance. I find it unusual for equity markets to accelerate this late in the cycle as usually only highly leveraged commodities like Silver squeeze exponentially (or the Nasdaq in 1990’s) – the higher we go I suspect the bigger the fall (unless the laws of gravity no longer apply).

Importantly, the US$ FINALLY made the new cycle lows we had been looking for which added further fuel for the commodity market rally – these markets are fundamentally linked (as commodities are priced in US$) and I do not expect one to turn decisively without the other. We are now looking for a completed wave structure for the decline and subsequent bullish US$ reversal. We have been patient thus far so let’s not jump the shark.

US equities including the SPX have started the year rallying at an increasing rate. This type of price acceleration “usually” occurs in the heart of a 3rd wave OR in the midst of a leveraged 5th wave blow-off. Therefore, if this is a genuine 3rd wave rally this equities rally may have a lot more upside to come.  Alternatively, we could be in the final stages of a 5th wave blow-off as shown by the red count. We have blown through relevant upside targets so the key question we have to ask as speculators is whether this rally is the real deal OR are we blowing off into a speculative peak (highly unusual given the breadth of the rally). I don’t know the answer as yet but importantly we have not been fighting this. I have tried to illustrate the exponential nature of this rally by the series of rising red trend lines shown below.

SPX Daily

Hedgers have been adding shorts in this melt-up. Meanwhile we have Daily Sentiment at 96 for US equities.

Importantly, momentum measures are now at new high extremes since the start of the post-GFC rally. Either this rally has much further to go to the upside OR we are setting up for an epic fail. Note on the monthly SPX chart below that RSI peaked in June 1996 while the rally continued into March 2000 with a series of lower RSI peaks – the same is NOT true of the Nasdaq rally over the same period where the RSI peaked into the highs (more evidence of a blow-off top). I am pointing this out so readers are aware of the potential outcomes and the dangers of exponential 5th wave blow-offs. I don’t know which of these playbooks plays out BUT we should be mindful of the POTENTIAL of an ending blow-off (shown by the red count above) and what that might mean for markets in this time of speculative euphoria. The key message here is that we can all protect ourselves of either outcome with the use of tail hedging.

SPX Monthly

Nasdaq Monthly

Meanwhile, Nasdaq futures shorts are getting squeezed.

Note the DJIA’s now exponential rise in what is a muddling economy but prices are being driven by increasing leverage (debt) and speculative exuberance.

DJIA Monthly

Now that the Russell 2000 has achieved our upside objective we are looking for evidence of a reversal – our “canary in a coalmine”. Trade above 160.55 for IWM invalidates the “ending diagonal” structure and will likely lead to increased strength. Key inflection point here for the small caps.

IWM Daily

RTY is approaching invalidation of its ending diagonal above 1615 – remember, if we don’t fail asap then we could extend much higher.

RTY H4

Interestingly, the VIX has NOT made new lows despite the strong new year run-up in US equities as this pincer move continues. Take note.

VIX Weekly

VIX traders are adding longs at a faster rate than shorts likely for tail hedging which likely explains the VIX not making new lows while equities are at ATH’s.

To the global equity markets and the DAX reversed from megaphone resistance we highlighted in prior updates. The November highs remain key resistance as trade above that will likely lead to another strong wave higher. Until then, our bias remains lower back towards 12700 and potentially much lower. Ideally, we don’t want to see the DAX trade back above 13400 to maintain bearish momentum.

DAX H4

The European Banks have broken out to the upside given rising rates in the Euro area. Bulls don’t want to see this back inside the triangle as this is likely a 5th wave rally.

Euro Banks Daily

The NKD has stalled since our triangle thrust higher but has held up despite a strengthening Yen. No interest for me here as there are no clear signs of a bearish reversal so the wave may extend higher.

NKD Daily

It is concerning that NKD traders have gotten so bearish which may imply that wave (v) of 3 is incomplete.

The ASX200 (SPI) reversed lower last week from recent highs but continues to hold breakout support. Still no interest for me here until we get a clearer structure to trade against. Trade back below 5950 prior swing highs may get me interested on the short side.

SPI Daily

To the bond markets and while the world is getting bearish bonds, the TLT chart just shows continuous range trading – strong trade below 122 would likely signify a break down in bonds and rally in rates.

TLT Daily

The TYX shows a similar choppy structure with no clear impulse since the 2016 rally. Tough to trade until we get a clear direction but I’d prefer to buy from lower.

TYX Daily

The TY bond declined into long term support but there is no evidence of a bullish reversal as yet. The mood remains bearish bonds and traders are now very short into structural support. For this decline to look impulsive it would need to accelerate lower from here. I think the better bet is to buy some cheap calls against the herd as I am wary of shorting into the hole here.

TY Daily

While I still prefer this ending wave C structure, we have no real evidence of a turn except for a small potential hammer on the Daily. Tough to call a low just yet until we get confirmation of a turn.

TY H4

TY longs capitulating here into long term support.

The US30yr bond broke shelf support but has failed to follow through to the downside so far. Despite the bond market pessimism, prices really aren’t breaking down as yet so I am wary of the potential for a false break. The decline from the September 2017 highs continues to look corrective unless it starts to accelerate lower from here which is not my base case. I don’t like the R/R of being short bonds here near term.

ZB Daily

ZB bulls may also be giving up here but less one-sided than TY and FV.

The 5yr continued trending lower with no clear signs of a bullish reversal while the declining wedge remains in play. Traders are extremely short so be careful of the asymmetric positioning!

FV H4

To the FX markets and the DXY finally made new cycle lows that we had been waiting for. We need to see this wave subdivide into 5 waves to complete the bigger picture decline and look for a bullish reversal. So far so good.

DXY Daily

DXY H4

DXY traders remain flat as we make new cycle lows.

The Euro shows the same picture as we approach our upside targets for this rally. We continue to look at this as an ending wave prior to a bigger picture Euro decline.

EURUSD Daily

EURUSD H4

Euro traders have continued to pile in to longs while bears have capitulated – a very one-sided bet being placed here so beware.

The USDJPY declined towards our 110 support after breaking 112 as we discussed previously. We are approaching an important inflection point where USDJPY is approaching support and Gold is approaching resistance. Trade below 109 likely sees 104 under the alternate red count (if Gold breaks out to the upside). Watch correlated markets here.

USDJPY Daily

USDJPY H4

YEN traders remain strongly net short so there is a risk the USDJPY continues to decline as traders are caught short?

The Aussie$ tried to reverse lower from our 0.7900 resistance area but reversed higher on Friday. As mentioned last week, the short positioning of traders made me wary of joining them – the bear count is invalidated above the September cycle highs where we will have to reassess the bigger picture. The impulsive look of this rally has me on the sidelines until we get evidence of a reversal. Next resistance is in the 0.80 area but we’ll sit tight given the US$ downside risk.

AUDUSD Daily

Aussie shorts may finally be capitulating…

The USDCAD is approaching Fib 61.8% support once again but we don’t yet have buy signal so we will see how this retest of the lows evolves. Tough to get long the US$ until downside momentum moderates.

USDCAD Daily

The USDCNY failed to hold trend support but the Fib 61.8% resides in the 6.38 area – this decline looks impulsive but once again, I am interpreting this latest decline as a 5th and final wave where upon completion we should be looking for a bullish reversal. Until then I’m standing aside.

USDCNY Weekly

To the commodity markets and Crude Oil failed to break our $63 support (tweeted last week) and continued to extend its advance with new highs. As we’ve said previously, Crude is unlikely to turn until the US$ does so patience is required as we might take a few shots at a turn. I just like the R/R here for shorts as we look for this wave 5 of (C) to end.

CL Daily

Crude traders extending historic long positions… when this market reverses, the door to get out will be very small.

Brent is in the same structural position as Crude. Looking for a turn lower now that $70 upside targets have been met.

Brent Crude Daily

Natty Gas ripped higher as expected but the bigger picture structure remains unclear. Ideally we see a 5 wave rally towards 3.44 while 2.70 holds the downside. We are approaching the top of the range so buyer beware.

NG Daily

Natty traders remain short in the hole.

To the PM’s and Gold has continued to rally back towards the top of the range as we had been anticipating. The triangle structure is invalidated above 1380 where we will have to consider the potential for a break higher towards 1450. Approaching an important inflection point for the PM’s as bulls pile in.

Gold Daily

Gold traders piling into longs once again…

Silver is also now at trend resistance in the 17.50 area so it is also at a near term inflection point. No signs of a reversal yet but we are watching the US$ carefully.

Silver Daily

Silver shorts capitulating once more.

That’s all for now folks. Have a great week 🙂

MCP Market Update: January 2nd, 2018 – The Year Ahead

by Mars Capital Partners | Jan 3, 2018

As we look forward towards 2018, let’s focus on some bigger picture themes:

1. Global Central Bank money printing and interest rate suppression has distorted financial markets pushing investors further out on the risk spectrum. This is at a time when global debt and deficits are all time highs while global demand continues to stagnate – what happens when global rates start to rise as we are forecasting…
2. The rise in Passive Investing in ETF’s (aka: anyone can do it), demise of Macro Hedge Funds and rampant speculation in Crypto-currencies (which aren’t currencies at all) suggests we are nearing a top of this speculative mania
3. Global equities remain within bigger picture wave (5) rallies that commenced in 2009
   – we expect global equities to top in 2018
   – wave 5 of (5) started in February 2016
   – while upside targets have been met, we have very little evidence to suggest an end to the rally
   – VIX continues its wedge compression as we look for an expansion in volatility in 2018
4. Global bond prices topped in July 2016 from where rates rose until March 2017
   – 2017 started a wave 2 correction but it is unclear whether this correction is complete
   – bearish Bonds
5. 2017 saw an impulsive decline in the DXY and rally in the Euro that is nearly complete
   – we should now be in the 5th and final wave of this decline
   – therefore we should expect a bullish turn in the US$ in early 2018
6. Crude Oil should be completing its wave 4 corrective rally that began in February 2016
   – looking for a bearish turn in CL to ultimately take out the 2016 cycle lows
   – this will likely catch the most crowded trade wrong footed and coincide with a stronger US$
7. Gold and Silver are ending multi-year wave (B) triangles that should terminate very early 2018
   – bearish PM’s thereafter as we target Gold at $700
8. Expect Commodities and US$ to turn together

Last year we forecast a strong equities rally targeting the 2500 area for SPX – the rally has been stronger and longer than expected as Central Banks pulled back from the idea of reducing QE. Momentum remains strong and the absence of a clear 4th wave of intermediate degree suggests this bigger picture rally isn’t done. We are counting this rally from February 2016 as wave 5 of V – an ending wave to this entire rally from the 2009 lows. Once this trend exhausts, we will be looking at trading from the short side because “IF” we are correct, this entire 8 year rally should be retraced. Our next measured upside target is where wave (5) equals 0.618x waves (1)-(3) which resides at 2716. We have no reason to fight this until we see evidence of a bearish reversal. 2018 is likely to feature increased volatility as we unwind 4th and 5th waves into the end of this rally but we’re not there yet.

SPX Weekly

The Daily SPX chart suggests we remain in the wave (3) rally with waves (4) and (5) to come. There are no signs of a tradable top but we are alert to a change in sentiment given the extreme bullishness. This year, we will be on the lookout for an impending market top and potential triggers for this to occur – first and foremost the wave count must be complete (no signs of this as yet) and the bullish paradigm needs to shift – likely triggered by rising yields and US$

SPX Daily

ES continues to rally impulsively and decline correctively. Until that changes the bulls remain in control but momentum is deteriorating.

ES H4

Interestingly, while equity traders are all-in, this is not the case with futures traders who remain partially hedged.

The DJIA has been the strongest index supported by the weakening US$ throughout 2017 – our expected bullish turn in the US$ will likely cause the DJIA to underperform in 2018.

DJIA Daily

The YM COT data shows the strength of this rally despite the pull back in futures longs. Physical equities leading the way.

The Nasdaq continues to subdivide higher in wave (3) supported by the 50 day sma and trend channels. This chart is more illustrative of declining momentum but as long as we continue to make higher highs and higher lows coupled with impulsive rallies and corrective declines, the trend is your friend until it bends. While we expect this rally to terminate at some point during 2018, I would prefer to see a clearer wave (4) and (5) play out first. In the meantime there has been no reason to alter our bullish stance.

Nasdaq Composite Daily

The near term NQ chart clearly shows the recent trend channel and likely push to new ATH’s.

NQ H4

NQ traders have been actively hedging as prices advance. Note the high level of shorts causing this squeeze.

The Russell 2000 looks the most vulnerable of US equity indices as we wedge into yet another high. The overlapping nature of the advance suggests an ending wave to complete wave (3) prior to a wave (4) decline towards the 200 day sma. Remember, this rally from the 2016 lows is an ENDING wave 5 which should be fully retraced on completing to this rally.

RTY Daily

The near term count (ending diagonal) suggests one final push higher for wave (c) of (v) of 5 before a bearish reversal. Trade above 1615 would invalidate this count as wave (iii) would be the shortest. Stylized pattern is shown below. Topping.

RTY H4

The RTY COT data shows shorts squeezed out again which makes this index more susceptible to a decline near term.

The DJ Transports are currently in wave 3 of (5) after bouncing off the 200 day sma we highlighted some weeks back. We require another wave 4 and 5 to potentially complete this multi-year rally.

DJT Daily

The VIX compression continues to wedge lower – ever tightening. Do you really want to be a seller of volatility here? Take note that momentum continues to make higher lows as per the MACD. This was the most crowded trade for 2017 – I am looking for a bullish reversal early in the new year as volatility expands. The market is gifting cheap protection so I suggest you take some…

VIX Weekly

VIX shorts remain elevated but not at recent extremes.

To the global equity markets and our 2017 Year Ahead Review highlighted the need for new highs in the NKD and DAX which have both performed as expected. NKD pushed strongly to new highs but the rally is incomplete. We are currently in a small degree wave (iv) of 3 with the expectation of (v) up towards 24000 to complete wave 3 from where we should see a larger degree wave 4 and 5 to complete the post-2009 rally.

NKD Weekly

Near term the count is unclear but we appear to be forming a contracting triangle. The question is whether we retest the 21800 area (black count) prior to wave (v) up or just push directly higher from here (red count) – the near term count is unclear. Either way, we should expect new cycle highs for the NKD.

NKD H4

The ASX200 (SPI) pushed to new cycle highs which was not expected earlier in the year. It has reluctantly followed the global equity market theme higher. This overlapping rally is likely doomed to fail but the wave count is unclear. I am looking for opportunities to short this index when we get confirmation of a turn – in the meantime I am not fighting this.

ASX200 Weekly

We are looking for the DAX to complete its multi-year rally in 2018. The DAX appears to have completed wave (3) of (5) and we should now be in wave (4) of larger degree. I would like to see a deeper correction in price and time before the next wave higher for (5). There is a confluence of strong support in the 12650 area with Fib, trend and 200 day sma intersecting. A break of this likely sees 12000.

DAX Daily

Last week we got the near term decline we were looking for but short of downside targets. Bears need downside follow through and keep the DAX below 13000 to maintain bearish momentum or risk another rip higher to retest the cycle highs forming a more complex correction.

DAX H4

To the Bond markets and as predicted in our 2017 year ahead review, we saw a wave 2 corrective rally develop throughout the year. We remain bearish from a bigger picture perspective as our base case is that rates bottomed in July 2016. We are looking for much higher rates later in 2018 (bearish bonds). The TLT chart shows the clear impulsive decline from the July 2016 highs – next we can see an overlapping corrective wave structure that either ended at the September highs or another push higher towards 133 as per the red count. We also have a potential H&S top formation with a neckline break below 122.00 likely to lead to an accelerated decline towards 117 and potentially much lower. In the meantime we are just range racing between 122 and 130.

TLT Weekly

TLT Daily

The US 30yr chart looks less clear from a near term perspective although the bigger picture theme remains (bearish). I was looking for a push higher towards the 155’00 area to establish new shorts which would help clear up the structure and give us a cleaner count.

ZB Daily

The TY looks less clear as the decline from the September highs does not look particularly impulsive. Expect strong support in the 122-123 area. Bigger picture we remain bearish but I am reluctant to short into strong support here. I’d rather be short from higher levels.

TY Daily

From a near term perspective, the decline is NOT a clear impulse although it can always extend lower. Looks to me that it is wedging into a low and I’d watch the near term red trendlines for guides. Maybe this red count below? Wary of a near term bounce from this support area previously highlighted.

TY H4

The German Bund is less clear and appears to be trapped within a larger triangle – merely range racing for the last 18 months. I have no strong view on the Bund as triangles can break either way. 158.73 is critical support.

Bund Daily

The Japanese JGB also appears range bound within a corrective channel consistent with the BOJ’s bond buying program – the structure looks like it needs higher towards 152 before the bears have a chance to potentially reverse this trend.

JGB Daily

The Aussie 10yr Bonds also looks like they need higher towards 97.75 setting up a bigger picture H&S (double right shoulder) before the bear trend can resume.

AUS10yr Daily

To the FX markets and after declining throughout 2017, the US$ is due for a strong bullish turn in early 2018 once 5 waves down is complete from the January 2017 highs. The world is universally bearish the US$ now which is the ideal time to look for a turn. We should expect this decline to terminate in the 90.00 area for the DXY. Our anticipated bullish US$ turn will have important implications for the commodity complex which we expect to turn bearish in 2018.

DX Weekly

We need to see a complete 5 waves down to new marginal cycle lows in the 89.50-90.50 area before we can turn bullish the US$ as shown below.

DX Daily

DXY traders remain flat for the last 6 months.

Like the DXY, we are looking for this year long Euro rally to end in early 2018 and completely reverse as we head to new cycle lows and parity.

EURUSD Weekly

This correction in the Euro from the 2015 lows is counted as an expanded Flat (3-3-5) with wave (C) targets at 1.618x wave (A) in the 1.23-1.24 area as shown below. Upon completion of wave 5 we will be very bearish the Euro as we look towards parity for this pair.

EURUSD Daily

Euro traders remain long and soon to be wrong.

The USDJPY spend 2017 going nowhere and range racing and it is starting to look suspiciously like a bullish triangle / pennant which fits our bullish US$ theme for 2018.

USDJPY Weekly

From a near term perspective, a decline towards 110.00 Fib support would present the best buying opportunity while a decline below 107.30 opens the door towards 104.

USDJPY Daily

A decline towards 110 would help flush out some of these short Yen traders.

The Pound continues to frustrate and hold trend support. We are still looking for wave 5 of (C) down but we don’t have a clear setup. Trade above 1.46 eliminates this count but I am probably not trading it until I see a clear structure to trade against. My least favourite dollar pair but I think there is significant downside risk with Brexit.

GBPUSD Weekly

It appears that most GBP traders have given up and are now flat.

The USDCHF remains range bound but I’d rather be a buyer in the 0.95 area for the next potential leg higher – no clear structure here but underlying sentiment favours the bulls down at trend support.

USDCHF Weekly

The bigger picture structure shows an A – triangle B – C wave corrective rally from the 2016 lows which likely completed wave (4). Near term, the Aussie$ is approaching our previously defined resistance in the 0.7900 area from where we would look for the downtrend to take hold for wave 3 of (5). Bearish the Aussie$.

AUDUSD Weekly

Once again, we are looking for the strong US$ to take hold.

AUDUSD Daily

Aussie$ longs capitulated at exactly the wrong time…

The USDCAD has declined to strong support in the 1.24-1.25 area from where we would look for a bullish turn. US$ bulls need to step up. Bullish USDCAD.

USDCAD Daily

CAD traders now flat after being whipsawed.

To the commodity markets and “IF” we are right about the impending bullish US$ reversal, the commodities will likely decline as a result. The bearish setups are definitely there. Crude Oil is a particularly interesting short prospect given the extreme long positioning of traders and 3 wave corrective rally into prior wave 4 resistance at 62.50 – our bigger picture structure is looking for a final wave 5 down for new lows below $26. We are alert for signs of a bearish reversal which should coincide with a bullish reversal in the US$. Bearish Oil.

CL Weekly

CL should now be in the final wave 5 of (C) where it is vulnerable to a bearish reversal although we have no evidence of this just yet. Awaiting signs of a bearish reversal to get very short against the herd.

CL Daily

Bulls pushing the envelope to new extremes! The longer they get, the more exciting this opportunity.

Perspective…

Brent Crude shows the same structure as we approach $70 resistance.

Brent Crude Daily

Dr Copper has pushed higher into a cluster of Fib resistance but the structure remains bullish until we see evidence of an impulsive decline – I have no strong view on the good doctor but the rally is extended and I would be looking for at least a correction towards 2.60 on a break of 2.90. I have no strong long term view for HG.

HG Weekly

Natty Gas continues to break hearts as it ripped higher from our support area – the count is unclear but we should expect an initial upside target in the 3.40-45 area. I would not chase this but look for a 3 wave correction  of this current advance to add longs – the reality is we continue to range trade and we are now back to the middle of the range. I have no strong long term view for NG.

NG Daily

Overloaded Natty shorts have been torched as expected.

To the PM’s and we remain bearish from a bigger picture perspective. 2018 will likely be the year that Gold declines towards our $700 target which will be where we will be getting very long physical Gold. The immediate question is whether prices turn down from the red triangle resistance or pushes through higher towards 1450 targets. This will largely depend on the US$ in the near term as we look for a bullish reversal.

Gold Weekly

Gold Daily

Interesting that the bulls have been reluctant to jump on this latest rally but still very few shorts.

Silver also continues to look bearish from a bigger picture perspective with a continuation of 3 wave corrective structures within a triangle.

Silver Daily

Silver shorts smoked again as it rips higher from our support.

That’s all for now folks. Looking forward to a great 2018 🙂