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.