Needless to say, things have gotten pretty interesting since my last post concerning the markets. Not to gloat or anything like that, I did call the recent fall a month before it happened in this article (click the link to view it). Now that things have changed, I’m gonna share what I think is likely to happen in the short-term.
Let’s start by discussing the 10-Year T-Note.
As you can see, the T-Note is in a clear down trend and recently broke out of it’s channel. One may be tempted to believe that such a breakout means that this market is now in an up-trend but I’m not convinced. First off, the sluggish nature of the rally indicates a demand of poor quality. Also, if you’d notice, towards the top of the channel, every rally was met with heavy selling. What I expect to see happen is another rally to test the previous high and then the sustained decline in prices.
Let us now discuss the EUR/USD currency pair.
What I’m gonna discuss concerning this pair can serve also as my analysis for the U.S. Dollar, just reverse everything I’m saying here for my take on what’s about to happen with the dollar. What I did with this chart was to break it down to the 4-Hour time frame. That being said, what you see if a short-term trend channel, horizontal support & resistance and a small demand line. In my opinion, if one wants quick action, I think the Euro is a buy. Longer-term? I’m a bear. What I think will happen is that the Euro will rally for now, test the resistance area again and sell-off strongly. Of course, I’m bullish of the dollar for these same reasons. Again, just reverse everything that has been said concerning the Euro. On a different but similar note, I’m bearish on gold as well.
Crude Oil? I’m not impressed by the recent $5 rally. It looks more like short-covering. It’s hard to call a major move in crude at the moment but if I had to choose, I’d be a bear, especially when you consider the strengthening of the dollar.
Now, the major mystery is what will equities do. My take is this: Since I expect treasuries to fall as the major move while rising for now, I expect to see the major stock indexes fall for a short time before rising again. However, this is a very critical time, in my view. If the bulls are the advances prices, they’re going to have to check this decline quickly. From a fundamental perspective, I think the market is waiting to see what the Fed is going to do concerning interest rates. If the Fed does raise rates, we can expect further weakness. Or, one may reasonably conclude that the recent crash was the market’s way of pricing in a Fed rate hike.