A Confused Summer Market With Bounty On It
Submitted by Nic Lenoir
A relatively uninspiring trading session as the market opened down and traded in a narrow range all day. Volume was a bit better than observed recently for equities and given the fact the move had no legs to the downside it would make me think we had bulls buying today's pull back and we could well see the market trade up tomorrow. This is in line with our observations for the Bund where the market has just retested the breakout level to the downside at 133.25 today and failed to bypass. Short term more pressure on Bunds can be expected as long as the level is not violated (risk reward is good to enter positions here).
That also would be in line with our thoughts on Friday as the market does not look toppish just yet. HOWEVER, Vix posted a very key bullish reversal ouside the lower bollinger band. Over the last two years, this has been a bearish signal for equities 100% of the time. In January the top in price lagged the low in Volatility by 7 business days, and the lag was 10 business days in April. Buyers beware, you have one or two weeks of fun, and after that comes a strong bearish move which will take the market lower than 1,000 in S&P futures. We will be very carefully following bearish divergence for equity indices to confirm this major signal.
A break of support for AUDJPY, AUDUSD, or Bovespa would all be indications that the top in price is behind us so we will also keep a close eye on those as we try to pin the top. Finger is on the trigger and the gun is loaded, this time it will be for real. Be sure that the next two weeks will be as confusing as can be in terms of price as a top is formed and hobby bears are taken out before the actual flush while the market sucks in a fresh batch of bulls.
Good luck trading,