Technicals are everyrthing

Market of any particular asset is like a tube with a ball inside. Collectives of Bulls and Bears are two people blowing into this tube from both sides simultaneously. The stronger one moves the ball away from him. if there are more bulls then bears, market rallies and vice versa. The problem is if you blow too hard the ball ends up in the mouth of another person and you have to start again. And you definitely need at least two people for this...

The more people follow the same technical indicator the better it will work. Obviously if there are two many people then you know what happens. Why am I mulling about this?

Yesterday I made wrong conclusion in the market analysis of copper charts. Absence of strong resistance levels determined by moving averages in this case should not have resulted in conviction to sell even if correlations held. In other words there was not enough selling power. Technicals are indeed everything!

Note on risk correlation

It is not a statistical observation, but it looks like intraday correlations of risk assets tend to weaken on the verge of trend change.

Boiling point

(this post was prepared on Tuesday night, as it took some time to format it because of the new edit software. Market behaviour today confirms analysis further) 

It looks like this week we might have reached an inflection point in the risk assets rally. Multiple reversals down from key moving averages coupled with some topping candlestick signs occurred in the overbought momentum territory. 

My interpretation of the move...  Chinese currency flexibility is a stick of two ends. From one hand this should be bullish for commodities in the long term as well as it should support foreign exporters. From the other hand allowing Yuan to appreciate is effectively an interest rate hike which is probably another attempt of the government to cool down the economy. The other problem arises from the fact that rising Yuan discourages Chinese from buying into treasuries of other countries. Again, I repeat, that my opinions never mattered to the market. Market knows best...

On individual assets:

1. S&P is struggling with 200 days moving average, coupled with overbought momentum further losses are likely:

2. Oil, same as S&P, but reversal takes place under intersection of 50&100 days moving averages:

3. Copper is a mixed bag but if other asset classes are to fall, this metal is also likely to reverse down

4. Dollar index remains in the up-trend.  looking for a close above 100 month moving average in June, which should lead to multi year dollar rally.

5.  Euro posted a reversal pattern in line with risk off trade, so did Canadian dollar (0.9 correlation with crude):

6. Nymex gas fell below $5 consolidation area, but still remains in the uptrend

Bottom line, it looks like summer will not be quiet and further dollar advance looks likely and while correlation with commodities and equities persists losses in equties and commodities are expected despite supportive fundamentals. the latter ones are expected to get worse in line with the idea of forward looking markets. Looking for month end closes to confirm medium term outlook. good luck trading!

I am back!

It is nice sometimes not to follow the market for a week and then, having cleared your mind, to have a fresh look at the charts... So what's going on?

1. My gold trade idea was wrong as gold in dollars continues making new highs... here's a lesson for me: even if charts look good, going against the trend is a tricky business. Luckily (not a good word for trading ;-)) hypothetical stop order was tight.
2. The other market I liked since the start of this blog - Nymex gas - continues its trend higher having risen by over a dollar since mid May. July contract is consolidating comfortably above $5/mmbtu.
3. Correlation between the usual suspects of risk trade has dropped:

Not sure what to make out of this... will have to look at it further.

4. Correction in risk assets: metals, oil, currencies continues. I will refresh the charts tomorrow as we approach key moving averages:



5. I would have thought that market reaction to news on Chinese currency would be more aggressive. hmmm...

Otherwise there is nothing else interesting to mention today.