Dear Members,
04 FEB 2018
This weeks crack in Nifty was a train wreck that was coming a long time. The bond market is now
becoming news and I covered it many times as the market to watch for the next signal. The
Jan 16, 2018 Long Short report - The New Beginning, highlighted a deluge of indicators that reached an extreme and the Midcap index has not gone an inch above that days high. However the Nifty did and that caused an inter market divergence a red flat to stay alert for the next market reversal.
So after this weeks market Panic everyone is talking about the Bond market and I published a Long short update on
the US Bond market and what it could mean for equities going forward so here it is.
My commentary on the
US bond markets crashing has been consistent but the market did not take note till now. In Dec I did a video showing the similarity with 1987 when in Aug, 1987 the Bond markets fell into their 3rd wave and the break of the wave 1 low marked the top for US stocks for that year in the lead up to the OCt 1987 crash.
Now the wave A low for the US 10 year was broken on Jan 10 2018, but the 30 year bonds only did so only this week, so markets waited it out for the 30 year to go into panic before reacting as they did this week. This chart documents the recent action of the Dow with the 10
year bonds. Note that in '87 the two bonds fell with a lag of a week below that level because the trend down was on daily chart of smaller degree. The chart below is weekly and the trend is of larger degree so a one month lag exists. The 30 years break and market top are therefore important. Also note how US bonds and Equities are inversely correlated. Falling bonds mean that money is moving out of bonds to equities and it is usually bullish for stocks up to the point that rising interest rates
cross a threshold that the market does not like. We probably reached that today.
Now what? The 2/5/10 year bonds have been falling
together with the shorter term rates leading. Now all the three read RSI below 20 on daily charts. Weekly RSI is below 20 for the 2/5 year and at 24 for the 10 year. The 30 year is at 24 for the daily lagging behind. All this combined with the Daily Sentiment Index [DSI], a poll of traders, coming in at 7% bulls, that means that 93% are bearish bonds. This is all put together a Sentiment extreme and fits best the idea that wave 3 of C might be close to complete as shown on the chart below. Bonds
may soon start a 4th wave bounce back or consolidation before wave 5 down and that could provide some relief to the panic in stock markets. I am not saying it happens tomorrow but in the next week sometime. Allow it some time for a few more squiggles lower if wave 3 continues to extend beyond the point where 3=1 was achieved. Also there is no reason why wave 3 cannot extend to 1.618 times, and these oversold readings might only result in 1-3 day bounce backs and a resumption of the down
trend.
Wave 4 could take up a few weeks then afterward. but eventually we should see wave 5 down in the bond market. So the worst is
not over for the bond market yet. Irrespective of the path that wave 3 and 4 take bond market shocks are going to keep coming sooner or later till the 5 wave decline is over and the onset of who knows... QE4/5/6?
The New Begginning
It took a few days for everything to change and the market to take note of the Macro trends building underneath. But you can stay ahead of them if you are alert to them. If you have still not signed up for Indiacharts Insiders it is about time as the markets have started an all new phase. Take your time to figure it out and make up
your mind. People often ask me at what level I will change my mind, have you got a level in mind? If yes I hope too that you have the courage to Act on it. The title for the Jan 2018 report was aptly titled ''A new Beginning to highlight this coming change. As far as I can see everything has changed already in the Macro markets.
