Opening Note:
The newsletter is a little brief today as I have a 10 am flight, but I wanted to make sure I sent it out because I believe market direction has shifted. With the Euro/Yen chart beyond a savable level and copper convincingly violating it's trendline with over a 7 percent break over the last two days I now believe that a sizable correction has begun and is basically inevitable. Yesterday I stated to proceed with caution as the stock indexes advanced slightly higher overnight and looked possible to still have a dip buying rally. However, the indexes convincingly sold off at the open and established a low close right near the bottom of their ranges. I believe that yesterday was the last day for the bulls to save an uptrending market and that the direction of the market has now changed. We are now in a sell the rally mode and if the euro/yen chart continues to degrade like it has then another fast paced liquidation phase as the stimulus plans dry up and increasingly risky bets are made with basically free money around the world. I do not recommend owning any physical commodities anymore and would not stay long anything other than the dollar index, treasuries, or possibly the yen for any extended time. When looking for the best markets to sell I believe that the harder they came they harder they will fall. This means metals like copper, silver, and if you are really bold, palladium, will be the largest sell offs. Commodities with weak fundamental stories like crude oil, natural gas, soybeans, and wheat, where people have long said that prices are well above where the cash should be, are also good sells as speculation and fund activity has rallied them beyond a reasonable level. I would avoid physical markets with a fundamental story like grains, sugar, and the other soft's as they will be more difficult to break because of the growing season rally, that should contradict the overall market.
Buys to Watch:
Dollar Index- It has become a steady crawl upwards to new highs in the dollar, but this might have been the best/only way for the market to rally and hold it's position. The dollar becomes a run to safety as commodities and equities break and I expect volatility to the upside to increase once the big picture becomes clear to the market. Second leg up projection 8050 to 8200.
Sells to Watch:
Silver- Over the last seven days silver has been the worst performer on the planet. If you look back on January 19th the market settled at $18.80 and yesterday closed at $16.21, which is close to a 14% break over those seven days. Silver is one of the first indicators of trouble in the overall market and with continued new low closes and a strong head and shoulders projection that continues to around $14 I continue to look for rallies to sell.
Euro- The consistently worst currency continues to have a slow break, but is clearly out of consolidation and continues to post lower closes each day. Second leg projection still to 136.50.
Nasdaq- This was the strongest performer by far on the recovery of stocks...basically you could chalk it up to Apple. I said earlier that I believe the indexes should be sold on rallies and the Nasdaq proved this yesterday while closing down 39 points, significantly more than the S&P 15 point break percentage wise. Look for rallies to sell. I will have sell zones in the future as they appear.
Put on the Radar:
Copper- Huge, definitive break through it's weekly trendline this week of 325 and currently sitting at 312. It would take a miracle for the market to be saved today and this was the final indicator I was looking for to reverse before becoming a full on Yogi Bear. This is a sell the rally market now as it was one of the best performers during the recovery and a good one to watch for overall market sentiment.
Euro/Yen Cross- If you have CQG the letters are YR to get the actual traded values instead of a line chart. Looking at a weekly the current formation looks like the top of a capital building, or literally a giant bubble. Stocks mimic the euro/yen pretty accurately so I look at this as a model for what the stock market may look like soon. The chart looks like it is just starting it's downside breakout with a bit of momentum. It looks beyond savable now and I would look at this for an idea of how far the market will go.
Notes:
*I will be out of town starting this morning through Monday afternoon, so there will be no newsletter on Monday and will resume Tuesday
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