Solidifying a KEY TURN Date – June 30

Posted by Victor Adair via Union Securities

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By mid-day Thursday June 28 US stock indices were lower following the Supreme Court Obamacare ruling…then they began to rise as rumors swirled that the latest (in a long string of Euro Summits) was actually going to produce some positive results. The markets spiked higher during the Thursday overnight session and by the close Friday the DJI was up 430 points from Thursday’s low. On Friday we also saw the largest single day rallies in copper, crude oil and several currencies that we have seen YTD…bond prices and the VIX fell sharply…it was risk on.

The dramatic rallies across several asset classes was a sure sign of a Global-Marco psychology shift…the market perceived the Euro Gordian Knot to be unraveling and re-assessments were made.

The market mood ahead of the Euro-Summit was negative…expectations of more baffle-gab and can-kicking…some markets, like Euro/dollar and Crude had huge short positions and the “positive” vibe from the Euro conference set off a rally that sparked aggressive short covering.

Cynics could be forgiven for saying that this rally will be just another “flash in the pan”…that the markets were craving a “fix” of the Euro debt problem and experienced a moment of euphoria…but the “reality” is that it’s only an up-tick in a bear market…disaster is only temporarily averted…asset prices spiked on short covering and in a week we will be back where we were…maybe…

I can easily be seduced by the cynical view…but… in my June 8 blog I wondered if we had seen a Key Turn Date on June 1/4, 2012 like we had seen on May 2, 2011 and Oct 4, 2011….

If we can suspend our thoughts about what we think the market “should” be doing (largely based on our assessment of the “news” flow) and look at what the market “is doing” then we must agree that, despite all the negative news, the stock market is going up…on Friday the DJI closed 850 points above it’s June 4 lows…and 2,476 points above its Oct 4 lows!

Bank shares gapped higher Friday, as did resource giants like Teck, BHP, Freeport. Crude was up over $7 BBL after falling $30 BBL since May 1.  (Interestingly Ford and GM made new YTD lows Friday…did I miss something?)…the VIX closed at 2 month lows and US 30 year bonds hit their highest yields in 6 weeks…risk on.

We had weekly Key Reversals higher in the S+P 500, French stock Indices, AUD, NZD…but not in crude or copper despite their big Friday rallies.

Bottom line: Assets took a big hit in May after a strong advance from the October 2011 lows but turned higher the first weekend of June…Friday saw aggressive short covering (and some real buying) on the back of a global-macro psychology shift….the market looks like it wants to go higher…I’ve been mostly on the sidelines with my short term trading accounts this month…the day to day volatility has been fierce and I’ve had little confidence in my ability to call the short-term swings.  

Charts: (Charts were added Monday July 2…so there is a little data showing for that date.)

Gold: had been in danger of breaking below the $1525 – 40 support level but got a reprieve on the Euro Summit news…the downtrend from last August still looks strong:


Crude: topped out this Feb around 110…below the highs made on Key Turn Date of May 2, 2011, and fell more than $30 before Friday’s big one day rally which came close to making a weekly key reversal


Euro: has been in a choppy downtrend since the May 2, 2011 Key Turn Date, the Friday rally came close to making a weekly key reversal.


S+P 500: despite the negative news the S+P has been trending up since Oct 4, 2011. The decline in May could be seen as a correction to that uptrend. There are 2 weekly key reversals up in the last 4 weeks.


Bonds: In the Really Big Picture bonds have had a 30 year rally…shorter term the June 4 weekend top around 152 may have been a key turn date for bonds


CAD: declined in May like many other assets…and turned up the June 4 weekend. European Bank Share Index: Also turned higher June 4 weekend


European Bank Share Index: Also turned higher June 4 weekend


Cameco: Japanese demand? Global Marco? Or both…this market also turned higher June 4 weekend.


CAT: A volatile “commodity” stock, but also one of 30 stocks in the DJIA, CAT touched last year’s May 2 key turn date in late Feb of this year before turning down hard.


CAT: but on the daily chart left a 4 day Island reversal when it gapped higher


Friday: Corn: another market that turned up on the June 4 weekend…prior to that date the market was expecting a record crop…since then hot weather has sharply reduced expectations


Victor Adair

Senior Vice President and Derivatives Portfolio Manager

Victor Adair is a Senior Vice President and Derivatives Portfolio Manager at Union Securities Ltd. Victor began trading financial markets over 40 years ago and has held a number of senior positions during his long career as a commodity and stockbroker. He provides daily market commentary on CKNW AM 980 radio Vancouver and is nationally syndicated on Mike Campbell’s weekly Moneytalks radio show.

Victor’s trading focus is primarily on the currency, precious metal, interest rate and stock index markets and his clients are high net worth individuals and corporations.“>Click here to contact Victor.