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Monday Technical Review

  • Written by Syndicated Publisher 2 Comments2 Comments Comments
    January 24, 2012

    There are a lot of happy bulls out there right now with a level of complacency I don’t think I have ever seen. What I do find comical is many of these bullish individuals are claiming that credit is wrong here or the US has decoupled from various currencies pairs, etc. Where the comedy comes in though is based on the reality the vast majority don’t even understand credit.

    But my purpose today is to not knock those who are on the long sided trade here. But for those who are taunting the bears about “picking the top” remember there will be bulls “picking the bottom.”

    Clearly equity is in the process of breaking out. I’ve discussed in countless posts how it appears exhausted. At the same time credit and the currencies have not signaled a new leg higher in stocks as they too are in the process of their own breakout. I continue to believe we are on the precipice of a major leg down in US equities as discussed on Friday’s Market Recap.

    There is one equity chart I do wish to post today and that is of the Mid Cap futures which I believe to be the most important equity product to watch. It came into a year long trend line and reversed over 1% lower into the close. This high beta leader has lagged the market for many months now and is not showing the leadership needed for an equity breakout.

    Mid Cap Futures


    So today apparently GS and JPM told people to short treasury. When was the last time Wall St had investors best interests at hand?  Seems the street did not get the memo because all treasury futures did today was pull back into support.

    Below are six month daily charts of the 10 and 5 year treasury futures, both of which look bullish to me and within one day of all time highs. The two year looks just as bullish.

    10 Year Treasury Futures

    5 Year Treasury Futures



    I have made reference to this in prior posts that currencies do not trade in a vacuum. That you need to look beyond AUD/USD or EUR/USD to understand to what level risk is stretched right now. Such discovery would help explain why on  a day that the EUR and AUD were up .7% and .5% respectively that equities were flat for most of the session. Standard logic would say equity should have been up considerably today.

    It’s not as simple as saying equities have decoupled from the EUR. That you no longer need to watch the EUR for signs of stress in Europe but rather the AUD which is a false statement. Without going into the detail of what I write I can comfortably sit here today and say risk is stretched to levels not seen in years. The AUD/USD may look poised for a breakout which will carry all risk assets with it but it is not that simple.

    Bottom Line

    Markets are very dangerous here. I accept the fact they may break higher. I’m not being ignorant to that very real possibility. But the price action in credit and FX combined with the extreme bullish and invincible sentiment in equities lead me to believe market participants are set for a major wake up call soon.

    On October 4, 2011 everyone was so confident how the market was oversold and fear was just too rampant. Now for some reason on the other end of the spectrum that same level of unbiased reasoning cannot be made. I prefer to be in the minority here along with a few of my readers. I’ve never been one to follow the group.

    Images: Flickr (licence attribution)

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