Europe Stock market on the right track

Europe Stock market on the right track

        DAX make an over 10% correction since April due to sudden sell off of Bund. I expect Europe stock market had resumed the rising trend by observing several indicators. Trader should not overlook it and trade on this trend.

        Figure 1: DAX underwent over 10% correction.

Source: Barchart.com

        Figure 2: Percentage of DAX stock over 50 day moving average hit a oversold level.

Source: IndexIndicator.com

        Figure 3: The reward to risk ratio is high after a 10 correction in DAX.

Source: Nautilus Research

        Figure: 4: Sentiment towards DAX also hit a pessimistic level.

Source: Animux

        Figure 5: Europe still have a impressive growth in next half of year.

Source: Nordea Market and Marcobond

        My takeaway is that oversold and pessimistic sentiment will trigger a impressive rally of Europe stock market. In addition, the fundamental is solid under easing environment and expansion phase in economy. 

Update on Bond

Update on Bond

                 Recent bond selloff makes a surprise on more investors. However, I expected and warned that in my previous post (here). In coming second half of year, we will entre cyclical reflationary phase in economy. It is time for last year global easing to take effect on demand and inflation. Bond and Commodity will underperform and outperform among asset class respectively. Bond start to approach oversold level so conservative investor can take some profit and trend follower can use some tools to prepare profit taking and find the opportunity to get into market after correction. It really depends on your trading and investment style.

         

Figure 1: Red line on iShares 20+ Year Treasury Bond ETF chart shows I am bearish on bond in my post on February.

Source: Barchart.com

                Figure 2: When bond yield rise with momentum, commodity and crude oil have an impressive gain. Economy is likely to entre reflation.

Source: Nautilus Research

   

                     Figure 3: US House price leads Core inflation and keep on the rising trend.

Source: Scottgrainns

                 Figure 4: Drop in Chinese yield will boost housing market and demand for commodity in second half of year.

Source: Nordea Market and Macrobond

                Figure 5: Although US data in first half of year is weak, the possibility of recession is still low so economy is not at risk at deflation triggered by recession.

Source: PFS group

                  Figure 6: COT data reveals Net Commercial position on 30 year Bond is close to previous high when bond is approaching an oversold level.

Source: Gavekal Capital

           

                    My takeaway is bond is approaching oversold and I prepare to take some profit in short term but bond yield still keep rising in inter meditate term. As a trend follower, I no longer predict what level bond yield will reach in future and see my technical tools to help me to take the profit.    

Bullish on Natural gas

Bullish on Natural gas

           Commodity had an impressive rebound since US dollar peak recently. For example, Crude oil rebound over 30% from the bottom. I think we can a reflation phase in economic cycle and commodity undergoes a cyclical bull market that created by global easing. However, some of commodities still are underperformed. One of example is Natural gas. I turn bullish on this asset and explain my rationale as follows.

            

            Figure 1: Natural gas had fallen over 50% since Feb 2014 and breakthrough a triangle pattern to build a bottom.

Source: Stockchart.com

            Figure 2 and 3: Crude oil had rebounded over 30% and the ratio Crude oil price to Natural gas is still high at historical standard. I expect Natural gas price eventually catch up the rise of Crude oil price.

Source: Stockchart.com and Ned Davis Research

            Figure 4: Hedger Long position (Smart money) reaches a record high. It means short covering in Speculator position is coming soon. It will fuel rally of Natural gas.

Source: SentimentTrader

            Figure 5: Market Sentiment hit an extremely pessimistic level. Most of bad news had been priced and rebound is expected to take place.

Source: SentimentTrader

           My takeaway is Natural Gas had started a cyclical bull market due to a waterfall decline, extremely pessimistic sentiment and ongoing reflation phase in economic cycle. A impressive rally is coming soon. 

Update on Euro......Rebound still on the way

Update on Euro......Rebound still on the way

                   I wrote a post (here and here) to explain why Euro is time to rebound but it had been keeping falling after that. It suggests that risk management is critical anytime in your trading life. Catching a falling knife is not my trading style and I am patient to wait a reversal to take a position. In this trade, I cut loss several times with discipline and control the loss. Even though my marketing timing is not perfect, I still have enough capital to make a mistake and follow the trend lastly. Euro formed a double bottom on April and breakthrough short term resistance at 1.10. At this moment, I expect Euro still have room to keep the rebound alive.

          Figure 1: Euro price chart with my call (Red line).

Source: Barchart.com

                 Figure 2: Euro sentiment still is at extremely pessimistic. There still is a room for investor get more optimistic.

Source: SentimentTrader

                 Figure 3: Commercial hedger still accumulate a significant long position on Euro. It means the rebound on Euro still is likely to be on the way.

Source: SentimentTrader

                 Figure 4-6: The latest credit data shows that the fundamental condition in Europe is improving.

Source: Danske Bank

                 Figure 7-8: DAX Index and 10 Year Bund start a correction. More stock and bond investors will close their position on hedge against Euro and it triggers a rebound on Euro. I expect a correlation of DAX and Bund between Euro tend to be negative.

Source: Bloomberg

          All in all, Euro rebound is further to go when sentiment is still at pessimistic and Fundamental factor is improving. In addition, over stretched DAX and Bund start to pullback. It also can fuel the rebound. So stay on the boat.

Update on Crude Oil

Update on Crude Oil

           

                    Now is the time to update on my pervious call in coming days. Firstly, I go though the call on long crude oil (post). In my previous post(red line on the figure 1), I say ‘My bottom line is that Crude oil had been likely to reach a bottom and significant rally will take place. However, the rising trend tends to be unstable at the beginning after a waterfall decline. Bears and bulls fight against each other at this moment so the trend may fail to breakthrough several times so don’t forget a stick risk management in following the trend. ‘.

                    Figure 1: My call on crude oil(Red line).

Source: Stockchart.com

Finally, Crude oil undergone a pullback to test previous Feb bottom and made a double bottom to resume the rebound over 30%. It raises the question: Is it the end of rebound? My answer is no.

Figure 2: The world economy keep improving when we see Manufacturing PMI diffusion index (It means the number of countries getting higher PMI than previous 1 month is more than that getting lower.). Demand for Oil is likely to keeping up.

Source: Gavekal Capital

                      Figure 3: US 5 year Breakeven Inflation Rate get convergence with rise of crude oil. Credit market view the uptrend of crude oil is not temporary.

Source: St Louis Federal

                         Figure 4: Crude Oil sentiment still is near pessimistic level. If investor is getting optimistic, it will fuel the rally of crude.

Source: SentimentTrader

                          Figure 5: On the contrary, US dollar still is at extremely optimistic level. I expect it will take a correction and favor the rally of crude.

Source: SentimentTrader

                

                               Figure 6 and 7: US oil production seems to begin to decline and inventory is likely to hit a peak.

Source: Bloomberg and Soberlook

                           My takeaway is that the rally of crude oil still is on the right track. Especially, the price refuses to hit new low when there are more bad news such as the record high inventory and Iran 5+1 negotiation. It is a bullish reaction to crude oil.   

Be patient in bull market

Be patient in bull market

              Several major stock indexes such as S&P, DAX and FTSE had made a new historical high recently. It is due to global easing and growth reacceleration. However, many ask the question this moment “Are we close to bull market top?” My answer is No. Firstly, I express my view that US or the developed markets still is on the uptrend this year. Noteworthy, I am bearish in this moment intermediately and expect a pullback or correction is coming soon but it will bring an opportunity to take a long position. It is unwise to follow an over optimistic and stretched rally now.

              

               Figure 1: The latest NNAIM Exposure Index reaches 99.2 that is 99^th percentile. It reveals money managers are extremely optimistic towards stock market.

Source: Pension Partners

               Figure 2: AAll Sentiment (Bull-Bears) is close to optimistic level.

Source: Pension Partners

               Figure 3 and 4: Investor Intelligence Sentiment (Bull-Bears) also hit a extremely optimistic level which is 99^th percentile and the forward S&P return is disappointed.

Source: Pension Partners

               Figure 5: Percent of S&P member above 50 days moving average has a divergence to SPX that make a new high. Worsening breadth show the rally is losing momentum now.

Source: StockChart.com

               Figure 6: In average, the number of over 5% decline in S&P is roughly 2 times a year. Since the intermediate bottom in mid-Oct, market never has an over 5% pullback. I expect a pullback is coming soon because the rally had taken over 4 months to go.

Source: Bloomberg

                Figure 7: Conference Board LEI still is on the uptrend and 6 month Diffusion Index stay above warning level. Economy is unlikely to entre recession.

Source: Conference Board

                 Figure 8: High Yield Bond Spread improves at the beginning of 2015. Credit Market performance reflect its health.

Source: Bloomberg

                  Figure 9: NYSE AD line made a new high with SPX.

Source: StockChart.com

                   Figure 10: Percent of stock in S&P above 200 days moving average which is over 75% stay at a healthy level.

Source: StockChart.com

                    My takeaway is intermediate term bearish (1-3 month) but long term bullish (1 year) in stock market. Long term bullish factors includes expanding leading indicator, positive treasury yield spread, ample liquidity, healthy long term breadth indicators. However, I still am patient to a take a long position after pullback given a over optimistic and stretched rally recently. 

Bearish on Bond but keeping cautious

Bearish on Bond but keeping cautious

          Recent plunge in commodity price cause a concern over global deflation. US 10 year Treasury yield hit the lowest since 2013. However, I think global deflation is unlikely to worsen at this point. In addition, I explain Crude Oil market had hit a mid-term bottom(here) and deflation caused by commodity price plunge will come to an end.Market reaction to deflation is overdone and turning point had reached so I will open a position to short US 10 and 30 year Treasury.

          

           Figure 1: US loan growth accelerate at a faster pace by annually 8%. This growth rate is unlikely to take place at a deflationary environment.

Source: SoberLook.com

           Figure 2: As well as US, Europe credit condition still is healthy. Demand and supply of credit is at an expansionary phase.

Source: Danske Bank

           Figure 3: Google data engine reveals investor is overreact to deflation.

Source: Google

           Figure 4: 1 year rate of return of 30 year Treasury hit a turning point seemingly.

Source: Thechartstore.com

           Figure 5: Public opinion towards Bond is extremely optimistic and price pattern show a reversal possibly.

Source: KimbleChartingSoultion.com

            All in all, 10 and 30 year Treasury had reached a turning point that a reversal is immediate. However, as I say in topic, staying alert to this analysis is necessary because most of economist (see this link) predict 10 year Treasury yield will be higher at first half of 2015. As usual, forecast is wrong when consensus is made among the crowd so I only just open this position with few risk exposure and tight stop loss is placed to control the risk.

Ready to attack Oil market

Ready to attack Oil market

              My trading methodology is that I find the opportunity and build my position in various markets where a significant trend will take place. I write post(here and here) before to say that gold and Euro are my target markets. Today, Crude oil is added to my list to attack. As usual, I am patient to entre the market until my trend following signals takes effective. You can use highly sensitive indicators to be your signals but the tradeoff is that the possibility of failure also is high. These indicators are not discussed here because it should be combined into your own capital management. I just say a significant trend is coming soon (let’s say within 1-2 month) in certain markets to reader in this blog. Back to Crude oil market, it had undergone an over 50% plunge since Jun, 2014. It is time for crude oil to make an impressive rebound at this moment. I explain to you by fundamental and technical factor.

             

               Figure 1: The latest public opinion towards crude oil hit a extremely pessimistic level. Most of bad news seemingly had discounted by the market.

Source: Sentiment Trader

               Figure 2: If crude oil rises four day in a row after hitting a low level. Average forward return after 3 month is over 18%.

Source: Nautilus Capital Research

               Figure 3: Rate of 1 year change of crude oil had reached a reflection point.

Source: Bloomberg

               Figure 4, 5 and 6: Crude oil is close to a bottom when comparing to historical pattern.

Source: Market Anthropology

Source: Market Anthropology

Source: Nordea markets and Macrobond

                Figure 7: Current percentage loss had been higher than historical average. 

Source: Ned Davis

                Figure 8: Most of countries cut their rate in the past 6 months. The latest update is Australia central bank join them to cut 0.25% official rate and PBoC announced a 50bp cut in bank required reserve ratio (RRR). Global easing policy at last can stimulate global growth to pick up in future several months. Crude oil can be higher possible to hit a bottom.

Source: PFS Group

                Figure 9: Currencies across the globe plunge against US dollar. It can boost their local demand when the import goods is cheaper. Lastly, it help to global growth to get back on the right track.

Source: PFS Group

                Figure 10: Smart money had flow into early cyclical sector to ready a global economic recovery.

Source: PFS Group

                Figure 11: Nordea Leading Indicator reveal OECD leading indicator will pick up as well as global economy.

Source: Nordea Market and Macrobond

                Figure 12: Now is time for Crude Oil to rally due to seasonality.

Source:Nautilus Research

                My bottom line is that Crude oil had been likely to reach a bottom and significant rally will take place. However, the rising trend tends to be unstable at the beginning after a waterfall decline. Bears and bulls fight against each other at this moment so the trend may fail to breakthrough several times so don’t forget a stick risk management in following the trend. However, I believe bull lastly will be the winner and an impressive rally will come in crude oil market in future 1-2 month.