October 19, 2020
October 19, 2020 Recap
The bull markets are done, dusted, and bronzed
Bonds: As I go to press the bonds are testing the 174 12/ to 171 28/ I-T support zone, sitting at 174 1/. The context, the tension in the background from an I-T point of view supports that if a break occurs here of support, the next target is L-T 144-152. The tidal cycles and trends following the system are short and continues to support the downturn as seen on the next chart in the gallery. The cycle is down, the MA crossover is down, the smooth CMB index is down and the smoothed RSI is down.
From an Elliott Wave point of view, the secondary peak in August was the end of the I-T counter trend wave (2), which leaves the long government bonds on the brink of the best part of a trend, wave three.
Euro Dollar, from a secular point of view the very long term bull market that ensued after its creations is in a long term correction of the mistakes it was founded upon. From the Brexit to Greece and others, the theme during debt contractions is “separations,” and that does not bode well for a union of states that do not have a common language.
But more to the point, the featured chart of the weekly euro tells a bearish story. The tidal wave system is good at catching trends and is giving early warnings with two of the indicators used. the systems is long until the SMA cross over happens, which should happen this week imagining a small amount of decline. I suspect that the system will flip this week.
The next two charts support that bearish idea. The weekly and daily bar has TEM signaling a high degree of tension that supports any new trend following the entry signal. Plus the daily bar shows a completed head and shoulder top based on traditional TA, including the breakdown and the pullback that test the neckline and fails to reassert the uptrend. There is nothing more bearish than a failed bullish signal and the reversal of the head and shoulder top qualifies.
A break below 1.16 calls for 1.14, the low side of I-T support zone. L-T support does not come in until 1.10.
FYI: The U.S. dollar index started in 1973, and today is a basket of six currencies – the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. The euro is, by far, the largest component of the index, making up almost 58 percent (officially 57.6%) of the basket. The weights of the rest of the currencies in the index are – JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%), CHF (3.6%). During the 21st century, the index has reached a high of 121 during the tech boom and a low of 71 just prior to the Great Recession.
In the last update, I pointed out that the buck made an L-T size panic size low late-August to early-September, just the opposite of the risk markets. Where the later all made panic buying tops. That in and of it self is the market telling investors where to find safe investment. Contrary Thinker is very long term bullish, the reasons don’t need to be rehashed here.
Rather the focus on the four window chart screen capture tells traders the Tidal Wave system is already long and I-T background supports more trend. With that in mind, there are a few key price levels that would trigger more upside. From 93.96, if taken out should lead to a move to 94.28. This zone is just S-T resistance. The big move is above 94.80, the most recent intraday high. A move above that level is an Elliott Wave five up and has two key implications. One is the larger trend is up, however the end of wave 4 overlaps wave 1, which is a “no-no.” As such the unfolding trend is a series of first and second waves putting the dollar index in a third wave, that part of the trend structure delivering the majority of the trend. If the market breaks out next stop 96.00.
Contrary Thinker does not see the Fed adopting a more dovish policy compared to the ECB, BOJ, or even BOE. It’s about conserving wealth and buying power for the wealthy 1%.
Crude Oil, It is difficult to imagine inflation without oil and unleaded petro spiking in price. There is no commodity compositive index that does not have carbon-based markets in them, and all measures of inflation have this cost in their formula. Whereas the shift into the “Green New Deal” is being taken advantage of by investors as I feature in the next chart. It demonstrates an eight-year big base building period and the recent breakout test and follows through trend into a period of panic buying. This is one of the markets to monitor during the coming decline in the stock market for relative strength and meaningful lows to begin buying this group.
Whereas, if it was not for the jawboning by the powers in the current administration, the crude market should collapse. the next chart shows a horizontal triangle with bearish implications. Of course, it could break to the upside but after failing to move above L-T resistance on April to August rally, the reversal from that point has the market on a Tidal Wave system sell signal.
The background tension both I-T and S-T calls for follow-through once a price trigger it hit. What else is key is our in-house %BB-VIX on the Crude’s implied volatility the last two times in signaled risk-off, the market made a tabletop. A move below 39.24 followed by a break of 38.43 should be enough to pick up a following of sellers. Contrary thinker expects a test of the lows made in April.
Great and Many Thanks,
Jack F. Cahn, CMT
Contrary Thinker since 1989,
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