LunaticTrader

Investing with the Moon

Outlook for Dec 10

Posted by Danny on December 9, 2018

Outlook for world markets with my brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

If you have any trouble to see the presentation below, then click here.

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. It comes as a daily html file covering over 3000 stocks and ETF. Instructions for use are included. Give it a try.

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LT wave for December

Posted by Danny on December 3, 2018

The LT wave was close to perfect for November. S&P 500 peaked on the 8th and bottomed on the 23rd, very close to the high and low indicated in the LT wave chart.
For December the wave projects a very similar pattern:

ltwaveDec2018

Strength in the first week (with a peak value on the 6th) is again followed by mid-month weakness that ends at an important low on the 21st. The final week of the year shows stronger again, but that will probably come in thin holiday trading so I wouldn’t bet the bank on it.
Don’t get carried away by LT wave doing very well for a month or two. There will always be months when it is doing a lukewarm job, if not worse.
Good luck.

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Outlook for Dec 3

Posted by Danny on December 2, 2018

Outlook for world markets with my brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

If you have any trouble to see the presentation below, then click here.

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. It comes as a daily html file covering over 3000 stocks and ETF. Instructions for use are included. Give it a try.

Posted in Market Commentary | Tagged: , , | Leave a Comment »

Outlook for Nov 26

Posted by Danny on November 25, 2018

Outlook for world markets with my brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

If you have any trouble to see the presentation below, then click here.

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. It comes as a daily html file covering over 3000 stocks and ETF. Instructions for use are included. Give it a try.

Posted in Market Commentary | Tagged: , , | 2 Comments »

Putting the QE toothpaste back in the tube

Posted by Danny on November 19, 2018

Last year I wrote an article on what to look for when the Fed unwinds its QE program: Quantitative squeezing – what you need to know.
Since the start of QT (quantitative tightening) the stock market is more or less flat and long term bonds are down about 10% yoy.

Let’s have a look at how the unwind is progressing and detect possible implications for investors.

The Fed’s balance sheet remains the main chart to watch (https://fred.stlouisfed.org/series/WALCL):

Fed_assets

From $4.46T a year ago the balance sheet is down to $4.14T, or an unwind of $320 billion. At this rate it would take about 10 years to get to a balance sheet that is back in line with the levels prior to 2009. As I pointed out last year, that’s not going to happen. Trying to put all the QE toothpaste back into the tube would create an economic crisis that is worse than the one they claim to have “solved” with their QE program.

I pointed to excess reserves held by commercial banks as the prime candidate to pay for the unwind. Here is the current situation (https://fred.stlouisfed.org/series/EXCSRESNS#):

excess

From $2.2T excess reserves a year ago the banks are down to $1.75T. That’s a reduction of $450 billion. It does look like those excess reserves are indeed picking up the QT tab. But the interesting thing to note is that a $320 billion QE unwind came with a $450 billion reduction in excess reserves. A reduction at this rate could continue for another 3 years, bringing the Fed balance sheet to around $3T, but that would still be three times higher than it was before the crisis. Essentially, the excess reserves of banks are back down to late 2011 levels already, with the Fed’s balance sheet still $1.3T above its late 2011 levels. This is a strong indication that only a partial unwind of QE will be possible.

I also keep an eye on commercial banks’ holdings of government paper (https://fred.stlouisfed.org/series/USGSEC#0):

banks_treas

There is only a small rise from $2.49T a year ago to $2.56T now, an increase of $70 billion. This means banks are not showing much appetite for the debt paper that the Fed is unwinding, which is what I expected.
How about foreign buyers? Official foreign holdings of US treasuries were around $6.3T a year ago and are down to $6.2T now. Largest holders China and Japan have reduced their holdings and Russia has sold almost all its US treasuries. Predictably, those foreign buyers are also refusing to become QT bagholders: http://ticdata.treasury.gov/Publish/mfh.txt.

This weak demand by major participants is why longer term treasury bond prices are down 10% over the year:

tlt

How about cash on the sidelines held by stock investors? The data are now here: http://www.finra.org/investors/margin-statistics
Stock investors have about $340 billion in cash and $650 billion in margin debt. Not much change. With those numbers we can’t expect stock owners to play much of a role in a $3T QE unwind. If anything they may panic alongside bond holders at some point, because margin interest rates go up together with rising Fed funds rates.

The question becomes: how much more QT can be done before it causes global bond market stress and starts choking the economy? We may be reaching that point already. If Europe and Japan start their own QT it could become even more interesting.

My guess is that QT in the US will be stopped (paused) as soon as excess reserves at commercial banks approach zero. It may be stopped even before that point. Stock and bond markets could show a very positive response to any such announcement. That’s going to be a wild card for investors in the year(s) to come. At some point it will be concluded that it is more desirable to freeze central bank’s balance sheets at their elevated post-2010 levels. Europe, Japan and China may never start their own QT (or only do a small symbolic reduction) because their economy remains too weak to take it.

A possible side-effect of doing too much QT would be an unexpectedly strong US dollar because it makes dollars more scarce.

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Outlook for Nov 19

Posted by Danny on November 18, 2018

Outlook for world markets with my brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

If you have any trouble to see the presentation below, then click here.

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. It comes as a daily html file covering over 3000 stocks and ETF. Instructions for use are included. Give it a try.

Posted in Market Commentary | Tagged: , , | Leave a Comment »

Outlook for Nov 12

Posted by Danny on November 12, 2018

Outlook for world markets with my brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

If you have any trouble to see the presentation below, then click here.

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. It comes as a daily html file covering over 3000 stocks and ETF. Instructions for use are included. Give it a try.

Posted in Market Commentary | Tagged: , , | Leave a Comment »

Outlook for Nov 5

Posted by Danny on November 5, 2018

Outlook for world markets with my brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

If you have any trouble to see the presentation below, then click here.

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. It comes as a daily html file covering over 3000 stocks and ETF. Instructions for use are included. Give it a try.

Posted in Market Commentary | Tagged: , , | Leave a Comment »

LT wave for November

Posted by Danny on November 1, 2018

The LT for October did a mixed job. The expected strong period in the second week did not pan out at all and the market just went into a steady decline. The projected weakness in the second half of the month was obviously correct. For November the expected pattern looks like this:

ltwaveNov2018

A positive bias is expected to continue until around the 11th with a noticeable peak value on the 9th. Then there is a weaker period until the 26th followed by more positive values in the final days of the month.

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The case for a 2019 stock market peak

Posted by Danny on October 29, 2018

Today I will take a look at some longer term scenarios I have been sharing on this blog. It’s good to take a new look at the bigger picture at least once a year.

Back in 2013 I started drawing parallels between the current decade and the roaring 1920s. While that looked farfetched back then, here we are.
I also kept updating my Dow 32000 scenarios. That has panned out quite nicely too, even though the highest Dow target has not been reached (yet).
In my latest update a year ago I explained why a one year extension to the bull market was becoming likely because of continued low volatility. This worked out as well with the S&P 500 reaching a record high in late September. I have updated my prediction chart with latest price action and this shows where we are right now:

^SP500 (Monthly) 8_2006 - 10_2018

My price target circles have done a good job and the Earl2 is at the verge of turning down. This suggests that the peak may be in, and a bear market is starting. But as long as the 9 year uptrend channel holds up we cannot rule out another rally to new records next year.

Long term bull markets have a habit of continuing much longer than most investors consider possible, and that could be the case again. Solar Saros 127 will be giving us a visit in July 2019, and while I would never make solar eclipses my sole consideration, traders will certainly remember 1929 and 2001, when we also had a pass of Solar Saros 127. Just like in the 20s we may be due for an important peak in the “9” year. Studying the late 1920s price action may give some useful clues.

When a market bounces back in a v-shaped recovery from a major low like 2009, then the rate of change will reset to more sustainable rates a couple of times. Trendlines cannot be kept up and a pullback or correction resets them to become less steep. In the S&P 500 there have been three such resets: early 2010, late 2011 and 2015. Is easy to see in this chart:

sp500m

After each reset the market has continued its climb along the new, less steep, trend. This year’s October drop is not even a reset yet, it has just brought it back to current trend. It will be very important to see if the 2550-2600 support holds up. Zooming in to a weekly chart we see this:

sp500w

The early 2018 correction broke a 2 year uptrend line. But the market has then recovered to new highs, suggesting the market is still bullish. As it now stands we still have higher highs and higher lows. It would take a drop below the February low to change that.
Something very similar happened in the final year of the 1920s advance:

dow1929

After a peak in early February there was a sharp +10% correction that broke the going uptrend line. A subsequent rebound saw the market rise to new highs a few % above the previous peak. That was followed by another sharp +10% decline, but no new lows for the year. Traders turned bearish, thinking the market had clearly peaked, but instead a final 20% rally started from that point.

We have seen very similar price action in the S&P this year. That doesn’t mean it has to continue in the same way. But I would keep this scenario in mind as long as the market doesn’t break to new lows for the year. Most investors seem to be rather pessimistic right now. A quick advance to new records is probably the least expected scenario. That’s why I would give it a 50% chance at the moment.

Good luck.

Posted in Market Commentary | Tagged: , , | 7 Comments »

 
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