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. 

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.   

Watch out! The crowd stands on the one side of a boat----Euro.

Watch out! The crowd stands on the one side of a boat----Euro.                      
            The crowds standing on the one side of a boat cause a tragedy to happen. I see it in Euro speculation. Every day I read more article and news to update my market sense and find almost all analysts, bloggers and even central banker is bearish to Euro recently. Last week, SNB make a nuclear explosion on currency market due to the removal of the peg. SNB expect ECB that will launch a QE to fight deflation this week cause a large capital of inflow to CHF. ECB action will force to them to give up the peg. Most of people overlook there are some data which reveal Europe escape form economic slowdown. Sentiment is one of my indicators to trade and find the opportunity in market. I am now bullish to Euro but wait for some technical signal to catch the rebound such as moving average because catching a falling knife is not my trading style. 

            Figure 1: The latest COT data reveals the short position of Euro from speculators reach at extreme level larger than at Europe sovereign risk in 2010 and Fed launching ending QE in 2012.

Source: Nordea Market and Macrobond

        

            Figure 2: The public opinion towards Euro also hit the extreme pessimistic level.

Source: SentimentTrader

             Figure 3: Currency tends to hit the bottom after QE is launched according to the past market response. It is normal that market is a discounting machine  reflecting expectation before the news.

Source: Nordea Market and Macrobond

            Figure 4: EM-US 2 year yield spread is tightening. Euro is like to rise to eliminate the divergence.

Source: Nordea Market and Macrobond

            

            Figure 5: When the downtrend is formed and reaches the pessimistic level, all good news is often overlooked by the crowd. There are some indicators to reveal Europe economy had hit the bottom recently. M1 leading Europe PMI is rising in the past several months.

Source: Nordea Market and Macrobond

               Figure 6: Demand for Credit and Loans pick up in the ECB Bank Lending Survey. Europe is likely to escape from deflation spiral.

Source: Danske Bank

                 Figure 7: Europe tends to ease their loan standard to enterprise according to the ECB Bank Lending Survey.

Source: Danske Bank

                 Figure 8: Private credit leading GDP growth also is on the uptrend.

Source: Danske Bank

   

                 Figure 9: Various business sentiment indicators are improving since 2014.

Source: Danske Bank

                  Figure 10: On the other hand, US economy is time to take breather. ECRI Leading Index had fallen below negative territory.

Source: Dshort

                  To conclude, Euro rebound is coming soon when almost all bearish factors is discounted. I will take a counter trend attack if my highly sensitive indicators give the signals to long. Of course, stop loss with position is a must to control the risk. However, above analysis still cannot change my view that Euro cyclical bear market (or USD bull market) still is on the way. It only is a short term trade to catch the correction with market extremely sentiment.

Opportunity to Long gold

Opportunity to Long gold

           In 2014, US dollar returns as a King among currencies. It become a the most crowded trade. However, it is two sides of the same coin. Commodity face a relentless bear market and crude oil accelerate to plunge in recent month. Over stretched rise of US dollar lead to oversold in commodity. I expect US dollar will take breather in its secular bull market(my view is that US dollar will rally in future 3 years at least and write a article to explain my point.). It is time to prepare to catch the opportunity to rebound of commodity. I choose gold as my proxy of this view.

Figure 1: US dollar rally is getting stretched when looking at the 6 month ROC in its history. US dollar performance is disappointed in the following 1 year.

Source: J.Lyons Fund Management, Inc

Figure 2: The US dollar hedgers accumulate a considerate amount of short position that is time to trigger a price reversal.

Source: SentimentTrader

Figure 3: The latest ECRI weekly Leading Index which plunge to be negative predict strong expansion of US economy at 2H 14 is time to decelerate.

Source: Advisory Perspective

Figure 4: According to SentimentTrader, the opinion towards US dollar had reached extremely optimistic level. At the same time, US dollar rise to a 11 year resistence.

Source: KimbleChartingSolution

Figure 5: Gold had declined by over 35% in Nov 14 which is higher than the slump in the all bear market in average historically.

Figure 6: The option towards Gold had reached an extremely pessimistic level.

Source: SentimentTrader

Figure 7: The Gold vs Gold miner Ratio had reached the level that had not seen since 2000 when is the start of secular bull market for gold.

Source: Short side of long

Figure 8: Two Gold Miner ETFs had breakthrough the triangle to rally. It is a bullish sign for gold.

Source: KimbleChartingSolutions.com

Figure 9: Gold react to be relative strong to other commodities even though US dollar makes a parabolic rally recently. (The latest NFP released today and beat above expectation but US dollar response weakly and gold perform well).

Source: Short side of Long

Figure 10: Gold had breakthrough the declining triangle.

Source: Short Side of Long

               All in all, it is time to build up a long position on gold. Especially, its price pattern is favorable to rally. I will accumulate position if the price keeps to rally in the next few days. At the same time, stop loss is used to control the risk. This is typical trading style of trend follower.