Click on Chart to EnlargeThe Options Speculation Index from Sentimentrader.com is now well above the April highs. Without a doubt there is a great deal of bullish fever happening now. There are some other indications from Rydex data and CoT data that there is serious excessive bullish speculation going on particularly in the Nasdaq 100. Small retail trader call buying also jumped this past week. That is not a good sign for bulls. Also it is interesting to me in that the market fell this week (the most in a couple months.
Click on Chart to EnlargeThe chart above is the EUR/USD currency pair. It shows an idea of price pattern development. The idea shown is not a standard Elliott Wave pattern, but based on logical concepts and sentiment data, I think it is reasonable. If the next move down retraces the recent move up in less time than it took to form, then that would generally support this basic idea.
The other main option would be that there is a large multi-year downward sloping contracting triangle forming, which should be completing a "d" wave and move down for an "e" wave at a minimum.
Also data from FXCM retail Forex brokerage indicates that their clientele has just now gone net long the Euro/USD after being net short the whole recent rally. That is often a sign of a trend change in their data. Basically I think it results from a combination of dumb money finally believing the current trend and buying into it, as well as a capitulation point of stop outs and margin calls that quickly liquidate the shorts at the peak of the trend leaving now mostly longs left, but at a trend that is now turning down.
As for stocks, if the S&P doesn't quickly retake the 1220 April high, then I would expect it to accelerate down. I don't really expect a consolidation/sideways move at this point.
The bubble in bonds is popping across the board, effectively pushing up borrowing costs for municipalities. Also, let’s not forget, Treasuries are the preferred investment for life insurance companies, investment arms, pensions and pretty every fortune 500 company.
ReplyDeleteLook at PCK, down 4.6% today. This is following an 8% drop last week. Other muni funds getting lit up include: BBF, EIM and MLN. Keep your eyes on corporate debt, via LQD and JNK. Should yields start to rise there, then look out stock market. Remember, this whole run up is due to the concept of free money.
Does anyone have some thoughts on how to hedge a muni bond fund portfolio? Previously the CME traded a muni future. The treasury futures don't correlate close enough. Any ideas?
ReplyDeleteMatt