Bonds & Interest Rates
The Bank of Canada lefts rates unchanged but the USDCAD rate changed and changed quickly. It was comfortably bid at 1.2520 prior to the news and quickly dropped to 1.2450. The BoC stated ”Financial conditions in Canada have eased materially since January, in response to the Bank’s recent monetary policy action and to global financial developments. This easing is reflected across the yield curve and in a wide range of asset prices, including the Canadian dollar. These conditions will mitigate the negative effects of the oil price shock, further boosting growth through stronger non-energy exports and investment.”
Arguably, the statement suggests that a rate cut at the April 15th meeting is unlikely. The combination of modestly higher oil prices, a neutral BoC and, if today’s ADP employment report (Actual 212K vs Forecast 220K) is any indication, the risk of a soft NFP report on Friday, points to a weaker USDCAD
Overnight, the Asia session saw a bit of choppy trading with AUD, NZD and JPY eking out gains which was likely just “noise” ahead of Thursday’s ECB meeting and Friday’s US nonfarm payrolls release. The European story was EURUSD which took another dip lower, probing support in the 1.1100-05 area. Oil prices were a tad firmer on news that the Saudi’s bumped prices for crude deliveries to Asia and the US.
USDCAD technical Outlook
The intraday USDCAD technicals are bearish with the move back through 1.2490 suggesting further losses to 1.2360-80 on a break of 1.2440. Failure to break 1.2440 points to additional 1.2440-1.2560 consolidation, until Friday’s employment reports.
Today’s Range 1.2440-1.2510
Overview:
- Stocks are hitting new highs despite negative string of econ reports
- ECB QE begins this month, likely levitating stocks
- Improving junk bond market, yen-carry trade, and growing bank credit also lending support
- While markets are at new highs, bullish sentiment shows investors are getting complacent
The S&P 500 had its first monthly close above 2100 in February, the Dow closed over 18,000, and the NASDAQ currently rests a mere 3% below its 2000 bubble peak of 5132.52. Why is the stock market heading higher when incoming economic data is surprising to the downside? The Citigroup Economic Surprise Index (CESI) for various global regions shows data for the U.S. currently rests at the lowest levels seen in nearly three years while the European CESI is near a two-year high.
Source: Bloomberg
What is surprising is the resiliency of the U.S. market in the face of such a sharp decline in positive economic surprises. Declines of the current magnitude have often marked the big corrections we’ve seen during the bull market.
….continue for 9 more charts and the summary HERE
The CONFIDENCE in the Ukrainian government is collapsing. The price of food is soaring as people now believe their currency will buy less with each passing day. The hrynya has fallen below 4 cents US. Like German Hyperinflation, here too we see people trying to spend their money on food as soon as they get it. To quiet protests over food, President Petro Poroshenko ordered the minister of the food reserve to fill the shelves of stores with flour, sugar, canned meat, and buckwheat from the reserve. The problem – there was no reserve left.
Some are calling this the “Financial Maidan” for it was a march staged at the National Bank of Ukraine to protest the crash of the hryvnya currency and the resulting impoverishment of masses of people as food rises in price. Earlier in the day, Kiev mayor Klichko accused the demonstrators of being “Russian provocateurs” and expressed puzzlement as to the cause of the protests. Obviously, he is not qualified to run even a bar no less a government. Then he unleashed riot police on the demonstrators. Confidence in the Ukrainian government is simply collapsing.
People have seen pictures of brawls in the Ukrainian Parliament. However, I have yet to see an accurate account of what is really behind such outbursts. These are clashes between the old politicians and the new. The way things were always done was outright corruption and the new politicians lash out against secret deals to still fill the pockets of the Oligarchs. These old politicians (Oligarchs) would pass legislation seizing someone’s land for the state and then sell it to one of their family members. The government under Viktor Fedorovych Yanukovych was simply a nasty corrupt organization. They were shaking down businesses for protection. They would send in some regulatory agency who then threatened to close the business. However, they would allow them to remain operating and retain only 20% of the profits giving 80% to the corrupt politicians. That was a generous offer and was at the root of the revolution.
When the Yanukovych government collapsed, other nations froze accounts of Ukrainian politicians and Oligarchs who had stolen money from the country. The nations were many, such as Switzerland and Austria. The EU froze money as well. However, it appears that there is further corruption for accounts that were frozen, are being mysteriously unfrozen. Since many of Yanukovych supporters are still running the country behind the curtain, one can only question has there been some deal under the table to unfreeze money provided Ukraine supports the EU?
The entire problem is that the people rose up against the corruption of the government under Yanukovych. They did not get the revolution they were hoping for. The old politicians are still in control. Russia claimed they were fascists and instigated by the West, which was not true. The West, meanwhile usurped their revolution and warned the people if they overthrew this government, they were on their own, Then the current government argues there is a war so they cannot reform until that is concluded. Thus, the Ukrainian people effectively lost their revolution.
….more from Martin:
Can the Dow Exceed 18600?
Briefly: In our opinion speculative short positions (full) in gold, silver and mining stocks are justified from the risk/reward perspective. We are keeping the stop-loss levels at their current levels, which means that we are effectively keeping some gains locked and at the same time we’re allowing the profits to increase.
Gold stocks erased the gains of the previous days during yesterday’s session alone and gold declined visibly as well. Is their and gold’s rally over?
It’s quite likely, but the more important thing is that even if they rally some more here, they are not likely to rally much more and lower prices are likely to be seen in the coming weeks anyway.
Let’s start today’s analysis with the gold market (chart courtesy of http://stockcharts.com
Our previous comments on gold from the long-term perspective remain up-to-date:
Gold ended the week below the declining red dashed resistance line and the trend remains down – there were no changes based on Thursday’s and Friday’s small moves higher.
Keeping this in mind, let’s take a look at the short-term gold chart.
In yesterday’s alert we commented on the above chart in the following way:
Please note that we are not ruling out a more visible corrective upswing at this point. The retracement levels based on this month’s decline are marked in green. The first retracement is at about $1,235, so even if gold moves to this level, it will not change anything. In fact, even gold moving to $1,262 would still be viewed as an upward correction at this time (we don’t think that it will move as high, though).
Regardless of the possible upward correction (based on today’s pre-market action, it’s already taking place), it seems that keeping the short position intact is still justified from the risk/reward perspective. The reason is that we are after major sell signals and breakdowns and a possible move back above the previously broken levels would need to be confirmed before having bullish implications. The correction could end quickly and be followed by a big slide (say $1+ decline in silver) that one would not be able to take advantage of by being out of the market. The breakdowns and medium-term sell signals justify preparing for the above while enduring small upswings.
The above remains up-to-date. Please note that gold indeed moved higher, but didn’t invalidate anything – it remains below both resistance lines and the outlook remains bearish.
We saw a repeat of Thursday’s action on Friday as gold once again moved higher, didn’t rise above the upper of the rising resistance lines, and closed very close to the lower one. The volume was also similar – and rather low – on both days. The implications are also similar – and bearish. The current small move higher seems to be nothing more than a correction after a quite visible decline that we saw in February.
Gold declined once again after reaching the upper of the resistance lines. The volume was higher than during the previous days’ upswings, so the price-volume implications are bearish.
If we consider the gold to USD Index ratio, we have just seen a breakdown below the 2014 lows and the ratio seems to be on its way to its target level. The implications are bearish.
Meanwhile, all that we wrote regarding the above silver chart previously remains up-to-date:
Meanwhile, the situation in the silver market didn’t change at all yesterday. Silver is after an important breakdown and it’s likely to decline in the following days or weeks. Please note that the fact that silver didn’t decline yet is not a sign of strength. It’s the natural way of silver to react – it very often either moves very sharply or stays in the same place for an extended time. Based on the recent breakdown, it seems that the next move will be to the downside.
Silver remains below the rising short-term resistance line and the declining long-term resistance line. Consequently, the outlook remains bearish.
Meanwhile, we wrote the following about the HUI Index:
(…) it seems that this decline is not over and that miners have further to fall. Gold is moving higher in today’s pre-market trading, so the odds are that HUI will move back above its 2013 low. This will not have profoundly bullish implications, though. The key declining resistance line is currently at about 200, so the odds are that even if gold stocks move higher, they will not move above this level.
The above remains up-to-date. We saw some strength and we could even see some more, but it would not invalidate the bearish outlook unless we see a confirmed breakout above the declining resistance line (which seems unlikely).
There’s one more chart that we would like to share with you today. It features the gold stocks’ performance relative to other stocks.
The above little-followed ratio has bearish implications for the precious metals market. As long as gold stocks are likely to underperform other stocks, gold will be likely to decline. The former is the case right now as the gold stocks to the general stock market ratio remains in a major downtrend.
Overall, we can summarize the situation in the precious metals market in the same way as we did previously:
Summing up, while we are already seeing some kind of corrective upswing, it doesn’t seem to be justified from the risk/reward perspective to adjust the current profitable positions. The profits may get smaller temporarily, but the odds are that they will become even greater as the medium-term trends remain down and the medium-term sell signals remain in place.
To summarize:
Trading capital (our opinion): Short positions (full) in gold, silver and mining stocks with the following stop-loss orders and initial (!) target prices:
Gold: initial target level: $1,180; stop-loss: $1,254, initial target level for the DGLD ETN: $75.23; stop loss for the DGLD ETN $63.16
Silver: initial target level: $15.70; stop-loss: $17.63, initial target level for the DSLV ETN: $66.25; stop loss for DSLV ETN $45.40
Mining stocks (price levels for the GDX ETN): initial target level: $18.40; stop-loss: $22.17, initial target level for the DUST ETN: $18.99; stop loss for the DUST ETN $11.32
In case one wants to bet on lower junior mining stocks’ prices, here are the stop-loss details and initial target prices:
GDXJ: initial target level: $23.37; stop-loss: $28.37
JDST: initial target level: $12.30; stop-loss: $7.00
Long-term capital (our opinion): No positions
Insurance capital (our opinion): Full position
You will find details on our thoughts on gold portfolio structuring in the Key Insights section on our website.
Thank you.
A possible 3PDh formation can be seen on the Dow Industrials index chart. The peaks in Dec’13, July’14, and Sept’14 are the three peaks. At 9mo, the distance between peaks one and three meets Lindsay’s requirement that they be no more than 10mo apart.
The Sept/Oct. decline is the separating decline and is the only weak park of the formation. Lindsay was adamant that there be a base composed of two tests of the low. If the base was descending (lower lows), it indicated a longer than normal domed house. If the base was ascending, it indicated a market that was in a hurry to get to its final high. In this case there is no base. If we remind ourselves that history rhymes but it doesn’t repeat, we can think of the Oct rally as more closely resembling an ascending base. In this case we need to count the 222-day interval from the low of the separating decline. This count points to a final high for the bull market near May 25.
I’m willing to accept a missing base as the formation does contain the requisite five-wave reversal(first floor roof) in January (see roman numerals).
A 107-day interval (from the 2/2/15) low counts 112-days to May 25.
If the hybrid forecast for a low on Mar. 30 is correct, that will set up a low-low-high interval of 56 days pointing to a top on May 25.
A high in May matches the 35wk cycle high expected then.
Caveat: A Domed house at the top of a bull market seldom lasts as long as a formation that begins at a bear market low. Also, an ascending base reflects a market that is in a hurry to get to the top. These counts may be pointing the right shoulder of the domed house.
About the Author: Ed Carlson
Ed Carlson, author of George Lindsay and the Art of Technical Analysis, and his new book, George Lindsay’s An Aid to Timing is an independent trader, consultant, and Chartered Market Technician (CMT) based in Seattle. Carlson manages the website Seattle Technical Advisors.com, where he publishes daily and weekly commentary. He spent twenty years as a stockbroker and holds an M.B.A. from Wichita State University.
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I've started managing my own investments so view Michael's site as a one-stop shop from which to get information and perspectives.
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Michael offers easy reading, honest, common sense information that anyone can use in a practical manner.
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A sane voice in a scrambled investment world.
~ Ed R.
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