Sunday, March 8, 2015

Market Analysis for Week of 3/9/15

The dollar go boom.  I'm still thinking it reaches the mid $99 handle.  If the price action allows it, there might even be an opportunity to get short for a sizable pullback just below that $100 level.  Because it's counter trend I would need a high to get put in and a retest that fails.  Then you can use that high for a small risk with potential big reward.  In the bigger picture I do believe for multiple reasons that the upside in the dollar is going to surprise a lot of people.  But a lot of that is going to come from a flight to safety rather than a sustained rate hike cycle, which is impossible.

I'm thinking the Euro bottoms when the dollar approaches $100 and the pullback will last a couple months.  It's likely the Fed removes the word "patience" at the meeting in 10 days because the "strong" jobs number is forcing their hand, but since the economy is actually very weak under the headlines, Yellen will downplay any rate hike and may even take June off the table.  So what we could see is continued dollar strength into and through the announcement,  but the possibility of a reversal during her press conference.  Take this with a grain of salt.  I'm just trying to envision a scenario that causes the dollar to temporarily top out.  This is one way.  I think it's important to anticipate things before they happen, but you have to be willing to let it go if it doesn't happen or if price doesn't confirm it.  The best trades are when you envision a scenario ahead of time, and then it happens, and price acts exactly how you expect it to.  Those are trades that give you opportunity to push open profits.

Gold is going way lower.  I thought we might see a bigger bounce from the $1200 area, but it never happened.  If the dollar does pullback from $100 for awhile, I could see gold putting in a double bottom at $1130 for a sizable bounce, but I wouldn't trade the long side of gold without a small defined risk.  It certainly doesn't have to bounce just because the dollar pulls back.  It could easily blast through $1130 into the 1000 handle.  A test of the downtrend line could offer a small risk entry around $1180.

Gold weekly.

Gold daily.

I'm leaning toward stocks selling 5% or so till the Fed meeting.  Maybe NQ 4220/30 area.  Fed week is options expiration, so if we get back into last year's rhythm, how about the idea that we bottom out after the Fed (or that Thursday) and have a vol crushing rally into Friday and then into the Spring to pierce Nasdaq Comp all-time highs?  

The ES has the 50-day EMA at 2064, so a close through there would open the door all the way to the 200-day and trendline around the 2000 area.  If things accelerate and go through there, I'd expect a stop run under all those lows and a reversal.  I don't think we've seen the highs in stocks yet.  But it'd definitely a time to err on the side of caution.    

Oil looks like it's starting to roll back over.  It's holding beneath the 50-day like the dollar held above its 20-day, which means large sellers are defending it.  So it's going to take some kind of massive change in sentiment to get through there.  I don't see it happening.  

While I figured bonds could pullback this much, I'm surprised they actually did.  I think it's approaching overdone, but I'll wait until after the Fed to see how they react.  Bigger picture, I don't think downside prices in bonds are sustainable.  First, even if the Fed makes it to the point where they can pull off a token 25 or 50 basis point rate hike to take a little heat off of them, there's just no way the economy can handle a full-on rate hike cycle back to historical normal levels.  I don't even think they can make it to 1% before they have to retreat back to zero and they're going to be in no hurry about hiking.  Bonds don't have to worry about interest rate risk.  

I expect a massive flight to safety bid in bonds and the dollar when the stock market has even the normal and inevitable 20% correction, let alone the collapse of the current financial system that we're heading for.  I used to think the Japan default would be the cause, but I'm warming up to the idea that it will come from a China implosion. Either way, the US is not an island of strength in a sea of economic woes.  We're in big trouble, just less than the rest.  When they go down, we go with them.  And tons of money will flow into the dollar and US bonds.  To think the economy can handle a full-on rate cycle increase is kinda silly.  There's a reason why interest rates have trended down for the last 30 years.  There's no economic Renaissance.  There's a multi-decade asset bubble suppressing reality. If the economy was actually strong and in need a rate hikes then bonds would be in trouble.  But it's not.  

Here's the chart for notes because the bond chart is all screwed up from the rollover gap. 

In short, this "strong" jobs number is scaring everything into thinking the Fed will hike sooner, and while they definitely want to change forward guidance to give them more freedom, I'm thinking she pushes out expectations in the press conference and that could be a turning point into Spring.  We will see.