This is a unique time in history and I totally understand everyone who puts out all the charts of the similarities to previous markets tops, and no one actually knows, so maybe you'll be right, but I think all that data from the past is useless now. Everything changed in 2009 when the Fed started telling everyone they will never let the stock market stay down again. The only real limitation to perpetual levitation is if the dollar is plunging to new all-time lows and the Fed is FORCED to tighten to save the currency. This would also coincide with skyrocketing oil like you see in end of cycle expansions, so I think we're years from a stock market top. With this being the case, you would think the Fed would wait for consistently weak data or a falling stock market to use one of their precious bullets, but Powell didn't take the opportunity to walk it back, so I guess they plan on cutting.
How's this for an idea: Powell is a markets guy, right? What if he sees the extreme socialist views on the far Left and thinks it's in the best interest of the financial stability for the country to keep a bid under the market to help Trump get reelected? Is it that much of a stretch? And you would think Trump will be on his best Sunday school behavior until the election, so unless the polls next winter/spring start showing him way behind, why wouldn't the deepest pullback until then be contained to 5%? Bad data means more easing and campaign-mode Trump means less volatility, no? This, of course, excludes a black swan, but that's always the case.
The real question for things like the dollar/gold/bonds is whether we're in a one-and-done "insurance cut" muddle-through goldilocks-data phase or whether we're entering a full easing cycle to ward off a recession. The reason I flipped my long bias on the dollar is because the Fed has WAY more room to ease than the ECB. Where's the ECB going? They're already negative. In fact, the whole dollar rally from 80 was predicated on the idea that the US economy is back in full swing, and I'm not trying to argue there's not any real growth, clearly there is due to globalization particularly, but also from the overall sentiment and years of cheap money. But I do argue all that growth is completely dependent on fiscal and monetary policies being loose and expansionary. We saw in real-time the Fed's inability to normalize either the interest rate or their balance sheet, so shouldn't all us crazies who said it was impossible get vindicated? What if we're right about the end game being a collapse of the financial system?
I understand the bullish thesis of the dollar being based on the global "short" of all the loans made in the overseas Eurodollar system, which keeps the demand for dollars high, but that reasoning could also be used to be bearish the dollar because when interbank credit tightens, the Fed will be forced to flood the world with dollars through every discount window, swap line, and tool in its toolbox. And credit will only tighten if the global bubble starts to burst, so if the global central banks all return to easing mode, then the "global dollar short" should remain gasoline poured over everything without a spark to set it on fire, which means the real narrative driving the market should be more about the relative easing differential between the Fed and ECB and/or the Eurozone potential for disintegration, which was the real reason I was uber bullish on the dollar to begin with. So, ultimately, if the Eurozone can keep a lid on the political fire of countries to exit, and the "global dollar short" doesn't ignite due to a return to coordinated easing, and the Fed has way more room to ease than the ECB, then why wouldn't the dollar retrace its entire rally from 80?
In terms of a trade, I don't think there's much of an edge right now. The 200-day false breakdown reversal in the dollar was a bullish signal, but if it's taken out again, that's a real sign of weakness.
I'm waiting until either the 200-day is taken out again, or 98 is taken out to the upside, so this is just a reference point for my other trades like gold and oil. There's really no reason to be too bearish or bullish the dollar or the Euro until the giant triangle is taken out in the EUR/USD, which means this could be noisy for months.
Gold
The gold breakout is holding like a champ so far. In fact, it's forming a bullish flag-like structure. I've adapted my style to hold a core position, which is a normal size that I can easily sit through volatility like a backtest of the breakout, and to make strategic strikes with more size that I will take off into strength because I know if I don't, and it pulls back deeper than I thought, then I'll get shaken out at the lows. In this case I prefer to wait for a shakeout of some degree, whether that's breaking below the flag and reversing or breaking out above $1442 to increase size.
Gold Daily - this broke out into overbought conditions, so consolidating like this is very bullish as it works off overbought through time instead of price. The RSI on the weekly will be overbought for a long time, so eventually it will need to unwind, but that could be from $1600 first.
Oil
Obviously, oil responds to its own supply/demand issues more than gold, but I feel like trying to figure out the fundamentals of oil is a waste of time. I can't compete in that space, so I just play the technicals and when they align with the dollar, I look for opportunities to get more aggressive. Oil broke out of a minor trend line on Wednesday. I believe it has plenty of room to run into the $65-$67 levels, and will ultimately retest the long-term downtrend line around $70. However, it has not backtested the 200-day/trendline breakout, so this too is core position only for me. If it backtests the breakout, and reverses strong, then I plan to size up, especially if the dollar is weakening. (Just listening to myself type this out, I am definitely bearish on the dollar, which I did not realize.)
Oil Weekly
Bonds
My belief is we live in a deflationary world that the central banks will continue to fight with temporary bouts of inflation through cheap money and QE until they ultimately lose because at the end they will have to save the dollar and burst their bubbles with market enforced tightening.
Inflation of prices in the real world need to be broken down into categories where you can isolate the cause. For example, healthcare prices have been skyrocketing for years, and the inflationists will point to that as validation of their view, but the real cause is government programs and baby boomers pushing up demand. College tuition is driven by government guaranteed loans that artificially boosts demand. Overall prices of real goods are driven by the credit in our fractional reserve world that pulls forward consumption and boosts demand, so all the debt in existence is inflation that already happened, and if everyone is in debt to their eyeballs, where's the demand for credit going to come from to create overall generalized inflation in a sustainable way?
College grads have less secure job prospects. Wages are stagnant. Manufacturing moved overseas. The Fed went full dove for years and the cheap credit surely boosted the economy, but it mostly fueled buyback schemes that inflated the stock market. That's where the inflation went. And I'm not saying we're not going to get commodity driven inflation if the dollar weakens, but that is not sustainable. The real cause of inflation for the dollar bears will come if we go to crazy town fiscally through "QE for the people" in some form of sending people free money, but you can't forget the Fed will be buying those bonds because MMT is impossible since it would eliminate the need for the bond market entirely, which is the collateral supporting the entire financial system and the "risk free" rate of return needed by so many funds, so it won't happen that way, therefore it's dangerous to think the long end is going to selloff due to fiscal recklessness when the biggest buyer in the world is there to inhale the whole treasury complex. (Note to the Fed: you should proactively change the Federal Reserve Act now before you are forced to, so you can buy up anything you want, particularly junk bonds, but you'll also want to buy equities in the future. Jus' sayin' - get on it.)
If you're a bond bear who refuses to learn from Japan and Europe, at least hedge your bad bet by buying the short end in proportion, so your losses are contained. I used to be a debt doomer too, but then I figured out the central bank is going to push the entire treasury complex to zero - because they have to - since then there won't be any interest payments for the government. Some folks think once the central bank owns the entire bond market, they can cancel the debt, but they won't do that because they would lose the ability to withdraw the currency from circulation if inflation gets out of control, so there's no reason to do that. They'll just pin interest rates at zero forever and monetize gov't spending until one of the major currencies loses public confidence and develops a narrative to be abandoned, then the whole financial system blows up, but that could literally be ten years from now (or more). In the meantime, the central banks have plenty of firepower to inflate and reinflate asset bubbles while the digital currencies of the future get worked out. I used to be a critic of the Fed, but now I think they're doing the only thing. Just keep the system going until the digital currencies arise (which, again, won't be Bitcoin), then we can devalue the whole world into a new monetary system that will likely operate concurrently as a hybrid for awhile. (more on this another time)
As for bonds, put it this way: we will never get sustainable real world credit driven inflation caused by real growth due to structural deflationary forces, so the only way the long end is going to sell off significantly is if the dollar plummets, so there's probably a pairs trade to put on if you insist being short bonds, but the better trade in my opinion is long the whole treasury complex and short the dollar because that could easily win on every aspect of the trade - huge. If the dollar skyrockets that would contain inflation and destablize the system, which will put a bid under treasuries, so you're hedged. And the dollar has the giant triangle of the EUR/USD to make an adjustment, meaning, the dollar trade will eventually become obvious, even if it thrashes around for awhile.
One more attempt to talk some sense into bond bears. Consider what just happened late last year as the equity markets plummeted because bonds were breaking down through that long-term trend line and finally creating some yield competition. The flight to safety bid is like a perma put under bonds. We live in a 1.5% - 2.5% world. So if you want to be bearish bonds you have to explain how we're going to become a 5% GDP world? Massive tax cuts combined with QE and MMT? Don't you think skyrocketing oil causing inflation to push on 3% would lead to some brake pumping by central banks to calm the angry public going WTF with gas prices dude? And how is the gov't supposed to pay the interest in a 5% world? It's too late, homie, we're going to zero across the board, if for no other reason than to allow the government to avoid the interest liability. It's just a matter of time.
Bonds Weekly - this could pull back into the 152 trendline, which is fairly steep, or even down to 147, which is a backtest of the horizontal breakout level of the H&S bottom. Either one will form a massive H&S bottom. Imagine how long a symmetrical right shoulder would take to form if symmetry happens.
Notes Weekly - the 124/125 level would form a shallow right shoulder, but if it pulled all the way back to 122 it would back test the H&S breakout.
Stocks
This is another example of holding a core position and waiting for selloffs to leverage up. I've already made the case about why I think there's huge upside in stocks. You have to remember the stock market is the nastiest market there is, so it would not surprise me to see the breakout levels get taken out to the downside at some point to shake people out before going higher again, but the point is I think we're in a low vol regime and I don't see why that will change. The Fed showed it's hand. You're either listening to what they're saying, and more importantly, WHEN they are saying it: "we got you" - or you're not. They will support every down tick until they have no bullets left. It's literally the only thing that matters. My hold time on AMZN and APPL is infinity, or a doubling, whichever comes first.
ES Daily - stocks broke out into overbought. The NQ is 100 points from its 10-day. While they certainly can grind higher and work off overbought through time, buying here is dumb - unless you're hedged by selling calls against it or buying puts, whatever. The stock market never lets breakout traders get a free ride. It's just a matter of time.
This is all I have to say for awhile. To summarize my overall view (not timing related): Long stocks, long oil, long gold, long treasuries, probably short dollar. I do have a post about Libra brewing in me, but it's summer. Best of luck to you. And me. lol.
