ONE-TWENTY TWO - A collection of personal articles on financial markets including analysis you can use
May
21

T2108 Update (May 21, 2015) – Finally, Something Different Even As Volatility Hits New 2015 Low

written by Dr. Duru
Bookmark and Share

(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. It helps to identify extremes in market sentiment that are likely to reverse. To learn more about it, see my T2108 Resource Page. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag. T2108-related trades and other trades are occasionally posted on twitter using the #120trade hashtag. T2107 measures the percentage of stocks trading above their respective 200DMAs)

T2108 Status: 53.3%
T2107 Status: 54.4%
VIX Status: 12.1
General (Short-term) Trading Call: Neutral. S&P 500 is setup for a fresh run-up.
Active T2108 periods: Day #148 over 20%, Day #107 above 30%, Day #51 above 40%, Day #6 over 50% (overperiod), Day #17 under 60%, Day #217 under 70%

Reference Charts (click for view of last 6 months from Stockcharts.com):
S&P 500 or SPY
SDS (ProShares UltraShort S&P500)
U.S. Dollar Index (volatility index)
EEM (iShares MSCI Emerging Markets)
VIX (volatility index)
VXX (iPath S&P 500 VIX Short-Term Futures ETN)
EWG (iShares MSCI Germany Index Fund)
CAT (Caterpillar).

Commentary
I almost missed it. T2108 pulled off a move in the past week unseen since December when my favorite technical indicator almost hit oversold status: T2108 gained for three and then four days in a row until Tuesday, May 19th’s small blip. T2108 has chopped since then (surprise, surprise) and closed today at 53.3%. The S&P 500’s rare feat was to follow up a marginal all-time high with a more convincing one. Three days of gains starting from last Thursday pushed the S&P 500 (SPY) into the upper band of its trading channel (chopping channel). Combined with T2108 still 17 percentage points away from overbought, the stage is set for a new run-up.


The S&P 500's upward bias is shining through slightly better through the chop

The S&P 500’s upward bias is shining through slightly better through the chop


Volatility remains the main blocker for me to fully accept the possibility that a fresh run-up is around the corner. My hesitation over trying to go long volatility last week was fully justified by this week’s performance. The VIX went absolutely nowhere after my trade and helped to keep pushing ProShares Ultra VIX Short-Term Futures (UVXY) ever lower. Today was the body blow with the VIX finally making a move…down. The VIX closed at a fresh low for the year.


Volatility slumps back into its stupor

Volatility slumps back into its stupor


Of course, theoretically, the VIX can continue falling. It hit 10.4 last July and marked a 7 1/2 year low. That is just not a bet I am comfortable making when I see plenty of reasons why volatility SHOULD take a 180 degree turn at any time.

As usual, there are interesting individual charts to trade even if the overall indices continue to refuse to cooperate with good risk/reward entries (long or short). First note from my last post on “charts to trade,” I have followed Bollinger Band squeezes to take a long-term call spread position on Fortinet (FTNT) and a short-term put position on Intuitive Surgical (ISRG). The latter was tough, but I had to follow the technicals. I also bought on the first sign of weakness on Hortonworks (HDP).

Best Buy (BBY)
When I featured BBY last week, I pointed out a bearish technical breakdown heading into earnings. Yesterday, the stock convincingly followed through on that weakness just ahead of earnings. Following earnings, BBY promptly gapped up over 7%. However, i faded the move immediately. BBY has a habit of getting faded on positive moves and today’s was a big one. The fade was bad enough to send BBY under its 200DMA again. Note how the high of the move came short of the previous high and neatly ended under the declining 50DMA. I closed my position to lock up profits, but I have the stock tagged for more fades if the opportunity arises.


The initial excitement over Best Buy (BBY) earnings faded quickly - technical resistance holds tough

The initial excitement over Best Buy (BBY) earnings faded quickly – technical resistance holds tough


Amazon.com (AMZN)
While the market was busy fading BBY, its favorite competitor AMZN was breaking upward through a Bollinger Band (BB) squeeze. This looks like the beginning of bullish follow-through to last month’s huge post-earnings gap up. I still have to chuckle remembering all the shock and panic that ensued when AMZN reported poor earnings last October. That was supposed to be the moment investors finally got fed up with AMZN’s profitless growth. The stock is up 51% since then.


Amazon.com (AMZN) looks ready to explode out of its Bollinger Band squeeze to continue post-earnings momentum

Amazon.com (AMZN) looks ready to explode out of its Bollinger Band squeeze to continue post-earnings momentum


Like my bullish bias on Netflix (NFLX) thanks to technicals, I plan to buy dips on AMZN aggressively going forward for quick swing trades on call options.


Daily T2108 vs the S&P 500

Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)


Weekly T2108
Weekly T2108
*All charts created using
freestockcharts.com unless otherwise stated
Related links:
The T2108 Resource Page
Expanded daily chart of T2108 versus the S&P 500
Expanded weekly chart of T2108

Be careful out there!

Full disclosure: long UVXY call options, short EUR/USD, long TLT call spread

May
20

Charts to Trade: HDP, ISRG, FTNT, BOX, WIX

written by Dr. Duru
Bookmark and Share

This is a quick post on five charts that caught my eye on Tuesday, May 19th. All charts annotated at and downloaded from FreeStockCharts.com.

Hortonworks, Inc. (HDP) has struggled to make a good post-IPO impression. The first earnings report underwhelmed and led to a fresh all-time low. The last earnings report was initially well-received and then faded to a slightly negative close. However, on Tuesday, May 19th, HDP made a tremendous 15% surge that not only resumes momentum for the stock but also represents a breakout. All it took was a Barclays upgrade to outperform and a price target of $30.


Hortonworks, Inc. (HDP) makes a fresh breakout attempt after an ominous post-earnings fade

Hortonworks, Inc. (HDP) makes a fresh breakout attempt after an ominous post-earnings fade


Intuitive Surgical, Inc. (ISRG) is the stock I want to love. The last earnings report was uninspiring and traders and investors bailed fast. The selling finally ended around 200-day moving average (DMA) support. Now, a Bollinger Band (BB) squeeze is developing. I would love to anticipate a breakout here. However, given the poor post-earnings performance, I will instead follow the break out of the BB squeeze in whatever direction it moves.


Intuitive Surgical, Inc. (ISRG) is stabilizing post-earnings with a critical retest of 200DMA support

Intuitive Surgical, Inc. (ISRG) is stabilizing post-earnings with a critical retest of 200DMA support


Fortinet Inc. (FTNT) is another BB squeeze candidate. Its technical profile is much better than ISRG here. The stock gapped up nicely post-earnings and has consolidated ever since. This setup makes FTNT look like a coiled spring – ready to break out and resume the very strong upward trend in the stock.


Fortinet Inc. (FTNT) looks ready to extend its run-up further

Fortinet Inc. (FTNT) looks ready to extend its run-up further


Ever since Jim Cramer hyped up the IPO for Box, Inc. (BOX), I have been wary of betting this is eventually a single digit stock. I now have put options after the stock has slowly but surely sagged despite periodic hype fests from Cramer gushing over the stock. It is rarely a good sign when an IPO comes right out the box, so to speak, with a very poor earnings report, especially one that immediately retests post-IPO lows. The chart below shows a pattern of lower highs. It seems only a matter of time before a lower low occurs.


Box, Inc. (BOX) looks ready to breakdown as it hugs all-time lows

Box, Inc. (BOX) looks ready to breakdown as it hugs all-time lows


Finally, Wix.xom (WIX) is the stock that has really called me to return. I was hoping for a pullback from a strong response to the last earnings report. The current breakout makes such a pullback unlikely. So, instead, I will have to buy back into this one on momentum. Note the persistence of strong (high volume) buying since earnings.


Wix.com (WIX) makes a fresh breakout

Wix.com (WIX) makes a fresh breakout


Be careful out there!

Full disclosure: long BOX put options

May
16

T2108 Update (May 15, 2015) – Chopped Into Another Marginal All-Time High

written by Dr. Duru
Bookmark and Share

(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. It helps to identify extremes in market sentiment that are likely to reverse. To learn more about it, see my T2108 Resource Page. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag. T2108-related trades and other trades are occasionally posted on twitter using the #120trade hashtag. T2107 measures the percentage of stocks trading above their respective 200DMAs)

T2108 Status: 53.0%
T2107 Status: 54.1%
VIX Status: 12.4
General (Short-term) Trading Call: Neutral.
Active T2108 periods: Day #144 over 20%, Day #103 above 30%, Day #47 above 40%, Day #2 over 50% (overperiod), Day #13 under 60%, Day #213 under 70%

Reference Charts (click for view of last 6 months from Stockcharts.com):
S&P 500 or SPY
SDS (ProShares UltraShort S&P500)
U.S. Dollar Index (volatility index)
EEM (iShares MSCI Emerging Markets)
VIX (volatility index)
VXX (iPath S&P 500 VIX Short-Term Futures ETN)
EWG (iShares MSCI Germany Index Fund)
CAT (Caterpillar).

Commentary
The S&P 500 (SPY) printed another all-time high on Friday, May 15th. The index is up 0.3% from a week ago when I wrote the last T2108 Update noting how those Friday gains represented half of 2015’s entire year-to-date gain. Such is the nature of the chop of the market that goes nowhere yet manages the smallest slivers of miniscule progress.


The S&P 500 just keeps chopping along into one marginal all-time after another

The S&P 500 just keeps chopping along into one marginal all-time after another


The S&P 500 is making so such slow progress upward along its 50-day moving average (DMA) that I describe this as a chopping range. The move is not technically a trading range since new highs are being made along the way. All the chop makes it feel like nothing is really happening. The index is also looking like a coiled spring given it is spending a lot more time above its 50DMA than below.

T2108 is chopping even more than the S&P 500. It closed at 53.0% – smack in the middle of a very firm range for 2015. This lag means, technically, the S&P 500 has a lot more upside potential before a notable pullback. My trading call stays in neutral though. Instead of betting on market direction, I am betting on an increase in volatility.

Volatility has held onto its lows despite this chopping range. The VIX is now back to levels that have preceded brief pops higher.


Volatility is falling asleep again

Volatility is falling asleep again


In the last T2108 Update, I noted I would bet on volatility once the S&P 500 made a new marginal high. The market’s chopping behavior did not disappoint. So, on Friday I loaded up on ProShares Ultra VIX Short-Term Futures (UVXY) call options. I only purchased half the position I wanted as I was looking for rock-bottom prices. Why be so cheap? Well, a bet on UVXY is a bet against a very strong trend…


ProShares Ultra VIX Short-Term Futures (UVXY) is in familiar territory - spiraling downward

ProShares Ultra VIX Short-Term Futures (UVXY) is in familiar territory – spiraling downward


…so betting on UVXY is a particularly tricky form of market-timing. In my favor is UVXY’s tendency to end a decline with a tap on its lower-Bollinger Band (BB).

Speaking of volatility bets, the REAL bet on volatility has been to bet against it. ProShares Short VIX Short-Term Futures (SVXY) has been an amazingly winning bet which has far surpassed market returns even with the stumbling since late last year.


Betting against volatility has been a tremendous long-term play with returns far surpassing the market

Betting against volatility has been a tremendous long-term play with returns far surpassing the market


Some market observers have expressed concern that a strengthening U.S. dollar (UUP) would kill corporate profits and the stock market. Now they can worry that the dollar’s decline signals a lowering confidence in the U.S. economy. I pointed out the dollar’s “trend troubles” in late April. The dollar’s primary uptrend is now officially over and an outright DOWNtrend from the recent highs is fully underway.


The U.S. dollar index is experiencing a very orderly breakdown that has confirmed an end to the primary uptrend

The U.S. dollar index is experiencing a very orderly breakdown that has confirmed an end to the primary uptrend


Market observers should duly note that the S&P 500 has not skyrocketed higher upon the dollar’s weakness. Perhaps it is because much of the dollar’s decline has come from a shift in sentiment toward the euro (FXE). EUR/USD has returned to the QE/Greek election trading band and is trading in-line with the post-election high. I am currently betting on at least a return to the bottom of this band. I am also expecting the top of the band to hold as resistance.


The euro is slowly but surely bottoming as the 50DMA turns upward

The euro is slowly but surely bottoming as the 50DMA turns upward


The U. S. dollar is not benefiting from a rise in rates. Surprisingly, the stock market seems not to care about these developments either. The sell-off in bonds is causing a lot of hand-wringing in fixed income circles, but not in equity circles. The 200DMA breakdown for the iShares 20+ Year Treasury Bond (TLT) continues, but TLT is not giving up easily. I am still expecting a rebound to at least the 50DMA – I guess I have just been burned too many times thinking that the rally in bonds has finally ended.


iShares 20+ Year Treasury Bond (TLT) is not giving up without a fight

iShares 20+ Year Treasury Bond (TLT) is not giving up without a fight


The big trade of the week goes to Netflix (NFLX). As regular readers know, I have been following NFLX closely from a technical standpoint. On Friday, the stock made a major breakout that resolved a Bollinger Band (BB) squeeze to the upside. I only caught this trade by following the stock closely. I sold my call options right at the open. The stock quickly retreated to $600 from there but rewarded new entrants handsomely with a run-up to as high as $615 before the close. NFLX is now up an incredible 80% year-to-date.


Netflix (NFLX) is in "full bull" mode as a Bollinger Band squeeze is resolved to the upside

Netflix (NFLX) is in “full bull” mode as a Bollinger Band squeeze is resolved to the upside


Best Buy (BBY) is moving opposite NFLX. This week, BBY broke down below its 200DMA for the second time in three weeks. This seems to confirm the head and shoulders top shown in the chart below. Earnings are coming up this week. Will they serve as the nail in the coffin? Prospects certainly seem poor with U.S. retail sales disappointing yet again.


Best Buy (BBY) is breaking down ahead of earnings

Best Buy (BBY) is breaking down ahead of earnings


Or maybe money is leaving Best Buy and going to Conns Inc. (CONN)!?!


Conns Inc. (CONN) continues an incredibly strong recovery with a fresh bounce off 50/200DMA support

Conns Inc. (CONN) continues an incredibly strong recovery with a fresh bounce off 50/200DMA support


Whole Foods Market is also breaking down. November’s 200DMA breakout is essentially over with WFM’s 200DMA breakdown last week. WFM is now a stock to fade on rallies although astute bears could easily have shorted WFM after it broke down below its 50DMA support in March. Note the orderly decline since then.


Will the real Whole Foods Market (WFM) please stand up?!?

Will the real Whole Foods Market (WFM) please stand up?!?


Tesla Motors (TSLA) is throwing bears for a loop all over again.


TSLA dropped in response to earnings but has not looked back since. TSLA is now up 37% since the late March low. The current uptrend looks strong enough to take the stock back to all-time highs. I do not think I am brave enough to place such a bet though.


Tesla Motors (TSLA) has regained its mojo and is throwing bears for another loop

Tesla Motors (TSLA) has regained its mojo and is throwing bears for another loop


Crocs (CROX) is making a great follow-through to a bullish post-earnings setup I pointed out last week. Unlike NFLX, I was not following closely enough to take the entry when CROX notched a new high on this run-up. In fact, with hindsight, I am seeing I should have bought a half position at THAT time and looked for the entry to complete the tranche. Another lesson learned.


Impressive follow-through for Crocs (CROX) as market sentiment has definitely become more bullish on the company

Impressive follow-through for Crocs (CROX) as market sentiment has definitely become more bullish on the company



Daily T2108 vs the S&P 500

Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)


Weekly T2108
Weekly T2108
*All charts created using
freestockcharts.com unless otherwise stated
Related links:
The T2108 Resource Page
Expanded daily chart of T2108 versus the S&P 500
Expanded weekly chart of T2108

Be careful out there!

Full disclosure: long UVXY call options, short EUR/USD, long TLT call spread

May
9

T2108 Update (May 8, 2015) – Volatility Plunges As Half 2015’s Gain Arrives In One Day

written by Dr. Duru
Bookmark and Share

(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. It helps to identify extremes in market sentiment that are likely to reverse. To learn more about it, see my T2108 Resource Page. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag. T2108-related trades and other trades are occasionally posted on twitter using the #120trade hashtag. T2107 measures the percentage of stocks trading above their respective 200DMAs)

T2108 Status: 48.8%
T2107 Status: 51.7%
VIX Status: 12.9 (down 15%)
General (Short-term) Trading Call: Neutral.
Active T2108 periods: Day #139 over 20%, Day #98 above 30%, Day #42 above 40% (overperiod), Day #4 under 50% (underperiod), Day #8 under 60%, Day #208 under 70%

Reference Charts (click for view of last 6 months from Stockcharts.com):
S&P 500 or SPY
SDS (ProShares UltraShort S&P500)
U.S. Dollar Index (volatility index)
EEM (iShares MSCI Emerging Markets)
VIX (volatility index)
VXX (iPath S&P 500 VIX Short-Term Futures ETN)
EWG (iShares MSCI Germany Index Fund)
CAT (Caterpillar).

Commentary
The S&P 500 (SPY) is up 2.8% year-to-date….exactly twice the gain of 1.4% achieved on Friday. No wonder market observers can still generate excitement on a big rally day that rests firmly within an on-going chopfest.


The S&P 500 continues to take 2 steps forward and 1 1/2 back: half the gains for 2015 came on Friday

The S&P 500 continues to take 2 steps forward and 1 1/2 back: half the gains for 2015 came on Friday


The NASDAQ is also following along its 50DMA and spending a little more time above support than below.


The NASDAQ's push higher is a little clearer than the S&P 500

The NASDAQ’s push higher is a little clearer than the S&P 500


T2108 is still lagging the S&P 500. The last bout of churn took T2108 as low as 38% last week. It closed Friday at 48.9%. This level means the market has plenty of upside potential. Yet, if previous patterns from this chopfest hold, the S&P 500 will barely scratch out a new marginal all-time high before proceeding to chop its way back to the bottom of its narrow trading (upwardly biased) channel.

Friday’s strong surge took out volatility with a body blow. The VIX plunged by 15% as it hurtled toward its recent lows.


Volatility gets crushed

Volatility gets crushed


I had no reason to expect such a dramatic move in the wake of Friday’s employment report, so I had no volatility trade on. Now, the trade is to go long volatility again. I will wait until the S&P 500 makes a little more headway toward or into a new all-time high.

The last trade I mentioned was a hedged play on iShares MSCI Emerging Markets (EEM). It worked out even better than I could have hoped as the gains were nearly immediate. A large plunge on Wednesday was followed by mild follow-through on Thursday. I set a stop to protect profits on my very large put position. The market saw fit to take out that stop with a quickness as EEM forged a bottom for the day. That stop became a savior as EEM gapped right back up on Friday. EEM at one point had reversed all its losses from the previous two days and almost brought the call option side of the hedge back to even. I will now ride these calls as long as I can given my profits from the puts have paid for them (and much more).


iShares MSCI Emerging Markets (EEM) is producing a lot more drama than the S&P 500 as it swings around its 200 and 50DMAs

iShares MSCI Emerging Markets (EEM) is producing a lot more drama than the S&P 500 as it swings around its 200 and 50DMAs


There are plenty more telling charts featuring their own trading opportunities. With earnings season largely behind us, it is a little “safer” to make moves now…especially moves that take advantage of post-earnings momentum.

Crocs, Inc. (CROX)
CROX surged on double its average trading volume in reaction to earnings. I have pointed out bullish patterns for CROX in the past; the last one eventually failed. Friday’s reaction is a strong, confirming follow-through to a surge from the previous earnings report. I wish I had been paying attention at that time because that move led to a very buyable 50DMA breakout. The subsequent upward trend channel remains well intact.


Crocs, Inc. (CROX) is in bullish form again

Crocs, Inc. (CROX) is in bullish form again


Wix.com Ltd. (WIX)
Speaking of missed opportunities, WIX is bursting out the gate and confirming bullishness from last year. I bailed on my position after momentum appeared to end. It looked like a timely move as WIX broke below its 200DMA in March. I took my eye off the ball and completely missed a nice comeback with a pre-announcement that took the stock above its 50DMA. The buy point came upon the second 50DMA breakout. WIX is now up three days straight on strong buying volume. It is above its upper-Bollinger Band and should pull back in the coming week or so. I am looking to buy the dips!


Wix.com Ltd. (WIX) has come back strong

Wix.com Ltd. (WIX) has come back strong


Coach, Inc. (COH)
COH is back to experiencing rough times. Its 200DMA has slowed down a post-earnings plunge. I am positioned assuming this support will hold and lead eventually to a test of resistance at the 50DMA.


The rally from recent lows has come to a sudden end from the latest earnings report. The 200DMA is so far propping up Coach, Inc. (COH) .

The rally from recent lows has come to a sudden end from the latest earnings report. The 200DMA is so far propping up Coach, Inc. (COH) .


Facebook (FB)
FB has recently found post-earnings support at its 200DMA but its descent to this level has been very bearish. After a swift post-earnings fade, FB sold off almost every single day on its way to support. It now trades below the previous triple top and has a LOT to prove again.


Facebook is clinging to 200DMA support that has finally ended its persistent post-earnings slide for now

Facebook is clinging to 200DMA support that has finally ended its persistent post-earnings slide for now


iShares 20+ Year Treasury Bond (TLT)
All eyes are on global bond markets. The U.S. dollar has been weakening while rates rise – a hint of inflation fear in the air. TLT got over-extended to the downside this past week, and I jumped in with a call spread. I moved to sell on Friday’s extension of the subsequent bounce. I could not get my price so I am hanging on for now. My current target is a retest of 50DMA resistance.

iShares 20+ Year Treasury Bond (TLT) is under big pressure. A 200DMA breakdown delivered an over-extended move to the downside...

iShares 20+ Year Treasury Bond (TLT) is under big pressure. A 200DMA breakdown delivered an over-extended move to the downside…


GoPro, Inc. (GPRO)
GPRO has been much maligned given its extremely high valuation and a product that sure seems vulnerable to eventual competition and commoditization. However, GPRO has experienced a nice uptrend from March lows. The gap up from earnings seemed to confirm the new momentum. The gap was quickly filled but a hammer pattern that ended right at the upward trending 20DMA seems to have provided support. GPRO is a strong buy with a stop below the post-earnings low. Even after that, I strongly suspect the 50DMA will provide even firmer support.


GoPro, Inc. (GPRO) is on the comeback trail. The 20DMA is providing firm support on a new upward trajectory.

GoPro, Inc. (GPRO) is on the comeback trail. The 20DMA is providing firm support on a new upward trajectory.


Baidu, Inc. (BIDU)
For a brief moment before earnings, BIDU looked like it was finally ready to break out of its downward channel and resume its upward momentum. Earnings ended those hopes quickly. The subsequent breakdown has sent the stock to the bottom of the previous downward channel and a new 10-month low. The progression is slow and choppy, but BIDU now has all the technical markers of a breakdown underway. I tried to play a bounce last week, and I was soundly rejected. I am now much more inclined to fade rallies on BIDU.


Baidu, Inc. (BIDU) is in trouble as a breakdown continues

Baidu, Inc. (BIDU) is in trouble as a breakdown continues



Daily T2108 vs the S&P 500

Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)


Weekly T2108
Weekly T2108
*All charts created using
freestockcharts.com unless otherwise stated
Related links:
The T2108 Resource Page
Expanded daily chart of T2108 versus the S&P 500
Expanded weekly chart of T2108

Be careful out there!

Full disclosure: long EEM calls, long COH calls, short FB shares and long FB calls,

May
6

The RBA Takes Out Insurance on Household Demand With A Well-Telegraphed Rate Cut

written by Dr. Duru
Bookmark and Share

(This is an excerpt from an article I originally published on Seeking Alpha on May 5, 2015. Click here to read the entire piece.)

The only thing the Sydney Morning Herald (SMH) missed in its amazingly accurate preview of the May decision on monetary policy from the Reserve Bank of Australia (RBA) was that the central bank would take a page out of the playbook of the Bank of Canada. The RBA concluded the May statement by essentially saying that it is keeping its options open on further rate cuts as insurance for buffering and bolstering domestic demand:

{snip}

Overall, I think the RBA provided one of its weaker explanations for a change in interest rates…{snip}

For anyone who believes that commodity prices, particularly oil and iron ore, have finally found their bottoms, this connection drawn by the RBA implies, even confirms, that the Australian dollar is bottoming as well. {snip}


The Australian dollar's weakness in response to the rate cut lasted for only a few minutes

The Australian dollar’s weakness in response to the rate cut lasted for only a few minutes

Unfortunately for the RBA, rate cuts are occurring along with a FIRMING in the Australian dollar against the U.S. dollar

Unfortunately for the RBA, rate cuts are occurring along with a FIRMING in the Australian dollar against the U.S. dollar


Source: FreeStockCharts.com

This early strength seems to vindicate my position that going long ahead of this decision – despite the SMH’s revelations which helped drive market odds of a rate cut to 76% ahead of the decision – was the better risk/reward strategy.


The odds of a rate cut soared into the May decision

The odds of a rate cut soared into the May decision


Source: ASX RBA Rate Indicator for May, 2015

The currency market is likely starting to anticipate the end of the RBA’s rate cutting cycle and has less desire to price in an extended campaign of additional monetary accommodation. {snip}

If the RBA is serious about the necessity of a lower exchange rate, it will likely need to get more direct with its monetary policy. I think the latest statement contains some hints that the RBA is getting ready to take rates as low as it needs to go, similar to the style of the Swiss National Bank (put aside the reality that the SNB still ended up with a much strong currency). {snip}

Be careful out there!

Full disclosure: net long the Australian dollar

(This is an excerpt from an article I originally published on Seeking Alpha on May 5, 2015. Click here to read the entire piece.)

May
6

T2108 Update (May 5, 2015) – Broken Record: Chopfest Continues

written by Dr. Duru
Bookmark and Share

(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. It helps to identify extremes in market sentiment that are likely to reverse. To learn more about it, see my T2108 Resource Page. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag. T2108-related trades and other trades are occasionally posted on twitter using the #120trade hashtag. T2107 measures the percentage of stocks trading above their respective 200DMAs)

T2108 Status: 56.9%
T2107 Status: 56.0%
VIX Status: 13.4
General (Short-term) Trading Call: Neutral.
Active T2108 periods: Day #136 over 20%, Day #95 above 30%, Day #39 above 40% (overperiod), Day #1 under 50% (underperiod), Day #5 under 60%, Day #205 under 70%

Reference Charts (click for view of last 6 months from Stockcharts.com):
S&P 500 or SPY
SDS (ProShares UltraShort S&P500)
U.S. Dollar Index (volatility index)
EEM (iShares MSCI Emerging Markets)
VIX (volatility index)
VXX (iPath S&P 500 VIX Short-Term Futures ETN)
EWG (iShares MSCI Germany Index Fund)
CAT (Caterpillar).

Commentary
I have almost felt like a broken record since November/December whenever I note that the S&P 500 (SPY) is trading in a chopfest. Yet, “chopfest” is exactly the perfect description for this trading action even as the index steadily creeps higher along its 50DMA support.


The S&P 500 has gone almost nowhere since the chopfest began in November - yet the uptrend from the 50DMA has lasted the entire time

The S&P 500 has gone almost nowhere since the chopfest began in November – yet the uptrend from the 50DMA has lasted the entire time


During this chopfest, volatility has made some big moves. However, for almost three months, volatility has remained relatively mute. It is very easy to get lulled asleep here, but I would say volatility is becoming a coiled spring at this point.


Is the VIX coiling for another jump higher?

Is the VIX coiling for another jump higher?


Although the S&P 500’s 1.2% decline just reversed Friday’s one-day surge, T2108 has moved to a fresh 5-week low. At 44.6%, I find myself thinking about oversold conditions again…and I know NOT to get too excited. Yet, the extended decline of T2108 relative to the S&P 500 has me wondering whether a bigger breakdown is finally around the corner. I have not yet acted on this suspicion.

The 50DMA has also acted as support and a magnet for the NASDAQ (QQQ). The trading has been better-behaved than on the S&P 500.


The NASDAQ is also following along its 50DMA

The NASDAQ is also following along its 50DMA


So it should not comes as a surprise to note that Apple (AAPL) continues to pivot around its 50DMA. This trading behavior has easily dominated the Apple Trading Model (ATM) for many weeks now. A potentially large caveat arrived today in the form of a DECLINE in the 50DMA. If AAPL does not pick up the pace soon, this loss of momentum could feed on itself – especially given the stock has failed to generate much post-Watch momentum and excitement. The latest topping pattern is looming ever larger at this point: the post-earnings “gap and crap” combined with a bearish engulfing pattern.


Apple may be losing momentum as the 50DMA begins to turn downward

Apple may be losing momentum as the 50DMA begins to turn downward


The dollar index is looming as a bigger and bigger wildcard. The primary uptrend at the 50DMA has ended and given way to a confirmed breakdown. Today (May 5) the index attempted to rally but stopped cold at resistance which was former support.


The dollar index is slowly breaking down. Can it recover its former luster?

The dollar index is slowly breaking down. Can it recover its former luster?


The dollar’s new weakness has potentially large implications for commodities and emerging markets. Oil in the form of United States Oil ETF (USO) is continuing its rally. However, a STRANGE thing happened today. While USO gapped up, Energy Select Sector SPDR ETF (XLE) failed to hold onto its opening gains. The volume was not high, but the price action looks like the end of a move. With oil sapping away the consumer surplus that economists have been waiting to get applied to the economy, several economic assumptions and inflation forecasts may need adjustment soon.

Which oil play will blink and lead the other one…?


United States Oil ETF (USO) gapped higher as oil continues its rally from its recent bottom...

United States Oil ETF (USO) gapped higher as oil continues its rally from its recent bottom…

The rally for Energy Select Sector SPDR ETF (XLE) may have just ended for now

The rally for Energy Select Sector SPDR ETF (XLE) may have just ended for now


I took this divergence as a signal that dollar-related/sensitive bets could be ready for a big move. I made a big bet on my favorite hedge play: iShares MSCI Emerging Markets (EEM). I am weighted to the bearish side, and I extended out the typical trade with puts expiring in June and calls expiring in July.


iShares MSCI Emerging Markets (EEM)  takes a long overdue rest

iShares MSCI Emerging Markets (EEM) takes a long overdue rest



Daily T2108 vs the S&P 500

Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)


Weekly T2108
Weekly T2108
*All charts created using
freestockcharts.com unless otherwise stated
Related links:
The T2108 Resource Page
Expanded daily chart of T2108 versus the S&P 500
Expanded weekly chart of T2108

Be careful out there!

Full disclosure: long EEM calls and puts

May
1

A Confident Story Cuts Through the RBA’s Monetary Conundrum And Drives the Australian Dollar Lower

written by Dr. Duru
Bookmark and Share

(This is an excerpt from an article I originally published on Seeking Alpha on May 1, 2015. Click here to read the entire piece.)

While the U.S. dollar (UUP) was experiencing fresh bout of weakness, the Australian dollar (FXA) was surprisingly even weaker. Although I explained in an earlier piece that the Australian dollar was over-extended against several currencies, I did not expect anything more than a mild pullback. After all, punching through the 0.80 level on AUD/USD looked like a display of strength as part of a near 2-week run-up since a surprisingly strong jobs report.


The U.S. dollar index continues its breakdown from the previous primary uptrend...

The U.S. dollar index continues its breakdown from the previous primary uptrend…

...yet, the Australian dollar has suddenly become even weaker as it pulls back from resistance

…yet, the Australian dollar has suddenly become even weaker as it pulls back from resistance


Source: FreeStockCharts.com

Somehow, I missed until the time of writing (the evening of April 30th) that a single article in the Sydney Morning Herald was credited for driving weakness back into the Australian dollar. {snip}


McKenna referred to “Reserve Bank to cut interest rates in May in face of weak economy.” The title alone looks definitive and predictive. I am guessing many traders freshly selling the Australian dollar barely looked past the headlines. If they had, they would have found at least one VERY odd feature of this article: not only did the author fail to name a source for his confidence, but also he chose not to use that ubiquitous yet anonymous generator of insider information “a source who did not want to be named.” {snip} Lacking references or a source, the author instead constructs credibility from the certainty of his language; a technique I find even less convicing that a conveniently planted whisper or two from the RBA.

The author creates credibility by making exceptionally definitive statements that could only come from someone with direct contact with a member of the Reserve Bank of Australia (RBA) or related insider. {snip}

While I can quibble about the author’s approach and lack of sourcing, I have an even bigger problem with the premise of cause and effect. The author believes from his RBA-informed source that rates must be cut to prevent the Australian dollar from climbing even higher. After the RBA cut rates to 2.25% on February 2nd, the Australian dollar plunged to new multi-year lows. it bounced right back the following day. The RBA failed to cut rates in March, and the Australian dollar proceeded to decline to fresh, albeit very marginal, multi-year lows. Those same lows were tested twice before the currency launched into a new two-week run-up, triggered by a surprisingly strong employment report. These points are shown in the above chart.

In other words, the last rate cut was ineffective in driving the Australian dollar lower. Why then should the RBA conclude that the next one will do any better? If anything, I contend that the RBA is trapped by a market that is trying to anticipate the END of the rate cycle, not the beginning of a new path downward. {snip}


The market is right back to anticipating an RBA rate cut next week

The market is right back to anticipating an RBA rate cut next week


Source: ASX RBA Rate Indicator

McKenna raised another good point in all this intrigue in a piece he called “Is there another RBA leak that needs investigating?” {snip}

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on May 1, 2015. Click here to read the entire piece.)

Full disclosure: net long the Australian dollar

May
1

Australia’s Q4 2014 Inflation Enough to Erase Momentum for February Rate Cut

written by Dr. Duru
Bookmark and Share

(This is an excerpt from an article I originally published on Seeking Alpha on January 25, 2015. Click here to read the entire piece.)

Perhaps the market was really expecting a much lower inflation reading in Australia.

The Australian Bureau of Statistics reported the Consumer Price Index (CPI) in Australia for the fourth quarter of 2014 at 0.2% after a 0.5% reading in the previous quarter. This was below “expectations” for 0.3%. The CPI for the year came in at 1.7%. While this brings inflation below the Reserve Bank of Australia’s target range of 2 to 3%, the decline in CPI was greatly dominated by the fall of gasoline prices:

{snip}

So, it will be very easy for the Reserve Bank of Australia to look through the impact of oil prices to decide it can continue to wait before dropping interest rates. Notably, the housing component of the CPI was relatively strong for 2014:

{snip}

A delay in a rate cut is exactly what the market concluded as the odds for a rate cut in next week’s meeting on monetary policy plunged from 38% to 16%. This move completely reversed the gains inspired by the surprise rate cut from the Bank of Canada just last week.


Expectations for a February rate cut suddenly plunge

Expectations for a February rate cut suddenly plunge


Source: ASX RBA Rate Indicator

{snip}


30-minute chart shows the immediate show of strength for the Australian dollar after the CPI report

30-minute chart shows the immediate show of strength for the Australian dollar after the CPI report


Source: FreeStockCharts.com

I am skeptical of the market’s conclusion. After all, one central bank after another has pointed to oil as a reason to proactively make a move against disinflationary forces. With iron ore freshly plunging this year, now at a 5 1/2 year low and down about 14% year-to-date already, the RBA has every excuse it needs to begin easing again at its next meeting.

Regardless, I consider this rally another opportunity to fade the Australian dollar. {snip}

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on January 25, 2015. Click here to read the entire piece.)

Full disclosure: net short the Australian dollar

May
1

A Plunge In Business Confidence and Conditions Help Drive the Australian Dollar Ever Lower

written by Dr. Duru
Bookmark and Share

(This is an excerpt from an article I originally published on Seeking Alpha on December 9, 2014. Click here to read the entire piece.)

The DailyFx lists the the National Australia Bank’s (NAB) monthly indices for Business Confidence and Business Conditions as having a low impact on currency markets. As a result, I do not have this report on my radar for analysis or trades. However, “this time was different.” The DailyFx listed “expectations” for Business Conditions as 13 and Business Confidence as 5. The actuals came well under at 5 and 1 respectively. I think the higher expectations were extrapolations from a relatively strong and encouraging October report. The response in overnight currency markets was immediate; the selling in the Australian dollar (FXA) is on-going at the time of writing.


The 15-minute view makes clear the catalyst for the latest breakdown

The 15-minute view makes clear the catalyst for the latest breakdown

The skids are fully greased for the Australian dollar versus the U.S. dollar

The skids are fully greased for the Australian dollar versus the U.S. dollar


Per the strategy I outlined in early November, I trigger shorts (or increase them) on the Australian dollar on confirmed weakness. {snip}


An ominous breakdown from recent highs continues for the Australian dollar versus the Japanese yen

An ominous breakdown from recent highs continues for the Australian dollar versus the Japanese yen


Source of charts: FreeStockCharts.com

{snip}


Business Confidence and COnditions in Australian plunge according to a survey from the National Australia Bank

Business Confidence and COnditions in Australian plunge according to a survey from the National Australia Bank


Source: National Australia Bank

The NAB notes that the trend for business conditions are much better than 12 to 18 months ago. The large spike in conditions in October was “broad based” while November’s plunge was narrowly “concentrated in retail, manufacturing and service industries.” However, there were three items with potentially large implications for the Australian dollar.

{snip}

No surprise that the confidence numbers are highest in construction and in finance/property given Australia’s hot housing markets, especially in Sydney. Ironically, these very same markets are likely making the RBA hesitant to cut rates to new historic lows. All other sectors plunged. Mining was of course the worst performer of all.

Perhaps ironically, forward looking indicators do not (yet?) reflect much of the current doldrums. {snip}

The bottom-line is that the Australian dollar’s weakness has inherited its own momentum now. Traders are now very willing to take the currency lower: no more “stubbornly strong Australian dollar.” The RBA need do little to nothing from now until the February monetary policy decision. I expect the Australian dollar to its low point well ahead of that meeting and then churn into it as market participants await confirmation of a freshly dovish RBA…whether in the form of a rate cut or the promise of imminent cuts.

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on December 9, 2014. Click here to read the entire piece.)

Full disclosure: net short the Australian dollar

May
1

Stern Warnings to Financial Markets

written by Dr. Duru
Bookmark and Share

(This is an excerpt from an article I originally published on Seeking Alpha on October 14, 2014. Click here to read the entire piece.)

{snip}

Guy Debelle, an Assistant Governor of the Reserve Bank of Australia (RBA), delivered a must read speech on pricing and volatility in financial markets. He was about as subtle as a ton of bricks in laying out a panoply of risks that lie ahead for traders and investors in bonds, stocks, and foreign exchange. Debelle spoke of sell-offs, corrections, and market disruptions in terms of “when”, not “if.” {snip}

Similar to the rhetoric we have heard from the world’s major central bankers, Debelle expressed surprise at the persistence of low volatility given all the disruptive events going on in the world:

{snip}

Later in the speech, Debelle implies that there is no rational explanation for this “state of affairs.” {snip}

However, Debelle completely ignores or at least attempts to step aside from the recent history. Seeing is believing for investors. In general, central banks have reacted only in one direction and have tended to show extreme caution and prejudice AGAINST data that suggest that the current course of monetary policy needs any dramatic adjustment. Even when discussing prospects for higher rates, the Bank of England (BoE) and the U.S. Federal Reserve speak of extraordinary gradualism. They speak in reassuring words that the ultimate destination for rates is much lower than what was considered normal not long ago. {snip}

What REALLY raised my eyebrows in this section of the speech was Debelle’s suggestion that we should NOT automatically believe and accept the pronouncements of central banks {snip}

Debelle seriously begs the question of what exactly kind of thinking do we need to do for ourselves? Read between the lines? Read the minds of central bankers? Quibble with their economic forecasts? Perhaps even bet against the printing press? I think not. I have frequently observed that the market is often hyper-sensitive to the words of central bankers, but cooler heads almost always prevail. Debelle’s statement made me wonder whether I should also be reading between the lines of this very speech. Hmmm…

Anyway, things really get interesting, even disturbing at times, when Debelle discusses the possibilities for market disruptions. He first takes aim at institutions who think they are making easy money chasing yield by selling volatility protection at low premiums {snip}


Financial Market Volatility

Financial Market Volatility


{snip}


Fear still knows no bound -next up 2012 highs?!?!

Revenge of ProShares Ultra VIX Short-Term Futures (UVXY)

Revenge of ProShares Ultra VIX Short-Term Futures (UVXY)


Source for charts: FreeStockCharts.com

{snip}

The disruptive impact of the sell-off will be driven by investors who are buying assets with “…the presumption of a level of liquidity which is not there.” If that is not a stern warning of a major crash-like event, I do not know what is:

{snip}


Despite recent strength, the U.S. dollar remains locked in a notable secular decline

Despite recent strength, the U.S. dollar remains locked in a notable secular decline


Source: St. Louis Federal Reserve

{snip}

This is definitely one area of analysis where market participants are thinking for themselves and essentially ignoring the constant reminders from the RBA that the currency is extremely over-valued. {snip}

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on October 14, 2014. Click here to read the entire piece.)

Full disclosure: long the Australian dollar, short the euro, net long the U.S. dollar

 Subscribe Subscribe Subscribe by Email Follow DrDuru on Twitter
Follow DrDuru
20-50% off entire stock NCAA apparel at Kohl's OLD ARCHIVES

Recent Archives

Great Links

Tag Cloud

Join In

Disclaimer