Dear Members,

US 10 year T notes

The bond market has been rallying as expected but the decline in US stocks so far feels muted. However this should change soon if the rally goes on in bonds. The pressure on US indices is visible but the decline so far is not as big as we saw in Europe. The US is waiting for its own triggers maybe. The bond rally does not appear complete in any respect so far and is likely to go on.

GBPUSD

Here is a big picture possibility with the Pound. For a while I have been clear that the dollar topped and that the Yen and Euro would go up. But the Pound was the outlier. It was forming a triangle as in a 4th wave. But now that prices have moved the other way. I wonder if the GBP is also going to rise on the dollar. That puts the trend into stone then. The dollar goes down against all the AE[advanced economy] currencies. This is a monthly chart from 1980 and you see that the recent low was at the parallel channel of the tops. So the only reason to not consider a bottom was that C=A was not achieved in the last 2 years decline. But that is not necessary. It is possible that wave C completed 5 waves as shown in the second chart below. If true we are at a multi year bottom in the GBP and it goes back to 2.15 against the dollar over 5 years. Yes Long term.

The second chart below shows the markings of 5 waves up for wave C for the USDGBP [inverse of the above GBPUSD]. Channels show how channel targets were met. If you remember my posts in 2015 I did mark the start of wave 3 as minor 1-2 subdividing. But later overlayed the monthly wave counts on the chart after the Brexit volatility. But it is not always that all time frames must match. So based on this weekly chart 5=1 was achieved at the new steeper channel target. Wave 3 subdivided and was 138.2% of wave 1. So good ratios. Prices have broken back into both the channels so it looks like a larger trend reversal is possible. I conclude that GBP EUR AND JPY are all going to be rising against the dollar. The dollar bulls will continue to get a rude awakening.

Soy Bean

Not much has happened since my last post on Soy Bean. The positive divergence on RSI is maintained and momentum indicators have crossed over to the buy side. The important support remains the lower end of this potential triangle at 2830. 2951 and 3115 are the 20/40 day averages, a close above both would strengthen the bullish case that wave 5 up is starting to head towards 4070 and then breakout higher.

Crude

Crude - 50% retracement is at 50.42, 61.8% is at 49.61, still to see which one will hold.

Coffee

Coffee prices have been correcting in wave 2. I did think wave 2 wad done but apparently not. So we are no breaking down into wave C of 2. This is going to get deeper before wave 3 up can start. Support is at 118 from the trendline of the lows, also C=A is near 119. And we are at 131. So it could go down to 118 in the coming months to complete a 5 wave decline in wave C before we can start up again.

VIX - Volatility index

The US CBOE Volatility index best known as the VIX has been falling for a year now, with interim bouts of rallies in between. So are we seeing another garden variety bump up in volatility? Given that some of the news is geopolitical it may appear so. But purely on weekly charts the first half of 2015 saw a 5 wave contracting triangle which coincided with a contraction in the Bollinger Bands and then Vols expanded sharply upwards in the months ahead. Since then once again we have witnessed a triangular pattern with five waves that has now ended in a contraction of Bollinger Bands. So the contraction does make it viable for a larger expansion to follow. One that could break out of the triangle and see new highs. This contraction in bands is a good reason to pay extra attention to volatility expansion this time around.

CAC - Ahead of the Elections

CAC - Ahead of the French elections the CAC index may top out. Or so the current wave structure suggests. Remember after Brexit I was anticipating that European indices would top out at wave 1 of C shown on the chart. I did not expect wave C to extend into a long drawn 5 wave rise. We are now in the last legs of what should be a 5 wave rise in wave C that has achieved C=A*1.618 in terms of ratio at 5142. So this is a good level for completing this structure. We do need an actual price reversal below the wave IV low that can push weekly indicators into sell mode to confirm this scenario. 

Brazil

A Year back I quoted that I would rather be Long BRIC except the 'I'. From a global perspective that was right given that the Brazilian Bovespa index almost doubled. So now when Brazil counts as a completed 5 wave rise where 3<1 and 5<3 I am concerned. Not long term but for the next year that this market could spend making a wave 2 decline maybe retracing down to the 61.8% mark near 50000.

An Ending Diagonal

Usually after averages break I would not expect that the ending pattern is still forming but the last weeks decline so far has not become a 5 wave decline on hourly charts and today's bounce also makes the fall so far 3 waves. So this keeps open the idea that an ending diagonal is still forming till we break yesterdays low of 9120. A retest of 9312 near the upper line remains open. As a rare case Nifty would retrace only 61.8% of the fall so far and sell off again. This is at 9214. So above 9214 we may head to 9312 but if 9214 holds as a resistance we can top out here as well.

On the daily chart this trendline of the lows was broken and is at  9200, so 9200 on a daily closing basis maybe watched as an important resistance level for the day.

DJ Euro Stoxx 50

The big sell off yesterday in European stocks follows the 5 wave rise completion that I discussed especially in the CAC. Here I show the same of the European stock average the DJ Euro Stoxx 50 index. The daily/weekly momnetum are in sell mode and s drop to the 40 week average near 3230 and the lower channel on this chart at 3300 are the first normal expectations. Below 3300 we would confirm a trend reversal based on this structure. Note how the recent top is near the wave 4 resistance zone.