Cycle analysis on some inter-related markets today. I can’t help thinking that we’re coming close to an important inflection point – in a number of markets.
Cycle Analysis: Emini (daily)
The Emini daily chart is showing we’re close to a cyclical low support level being put in. Yes, we could easily break down through that but take a look at the next chart.
High Volume Churn (Emini daily)
We’ve had a spike up in Volume Churn – this is the ratio of volume traded to the bar’s range. If you like, it’s a measure of "Ease of Movement". When the volume is high but the range is low, we’re finding it difficult to make downward progress because new buyers (at a low) are entering the market.
Back in November 2008, a daily volume of 2.4 million contracts produced a downside range of 34.25 points. Today, the same volume traded only produced a downside range of 20.75 points.
The hypothesis is that last November no one was buying, today there were new buyers entering the market. And don’t forget we’re tantalizingly close to the magic 800 level.
Cycle Analysis: Crude Oil (daily)
When you look at Crude Oil we are very close to a cyclical low turning point and an "End of Trend" warning signal. If we’ve found a low in Crude Oil and it begins to reverse, it could signal an uptick in inflation.
Cycle Analysis: Bond Market (daily)
Higher inflation would make the Bond market less attractive. Money would flow out of Bonds and into Equities. Indeed some macro, big picture guys are suggesting that hyper-inflation would destroy the long term bull market in Bonds that’s been in place since 1981 – short bonds, the macro play of 2009.
The Bond market has run-away in the last 4 months – a flight to quality. But it looks suspiciously like a blow-off move. From a cycle perspective, we’ve just completed a Pull Back in trend and we’re moving back up to the old highs. But we’ll get an "End of Trend" warning signal at some point in the next week or two.
Cycle Analysis: US Dollar Index (daily)
And of course if we get higher inflation and the Bond market looks less attractive to overseas investors (Chinese and Saudis) then the dollar will decline – even tank? A weaker US Dollar would also fuel inflation from more expensive imports.
The global de-leveraging of 2008 has seen the Yen and US Dollar strengthen. But did the US Dollar peak in late November 2008? We certainly had an "End of Trend" warning signal and we’re now making a lower cyclical high. Will this resistance level hold?
Lastly, the credit markets are starting to improve. I was surprised by how much. Check out this article by Prieur du Plessis on The Big Picture.
And then next week we (or should I say "you" since I live in Australia, mate) get the Obama-most-expensive-ever-inauguration. Talk about convergence of turning points.
Good luck with your Emini trading.