The coming correction in Bonds

US government bonds have torpedoed ahead, a trend which I believe will reverse soon. Either that, or a total collapse of the dollar. I don't think both will happen, it is the matter of which will happen.

After a successful trade in shorting the USD for December, I believe that short bonds is one of the few clear trades for the next few months. The stock market has disappointed with somewhat anaemic performance, and I believe the balance of probabilities between bullish and bearish outcome is currently even.

Short term neutral on the Equity Market; USD to continue weakening

The market rebounded strongly on Friday, suggesting that the Thursday/Friday drop could have been the pull-back we were expecting. However, its extent was too deep to remain a comfortable bullish stance. We are therefore turning neutral and awaiting clearer patterns in Equities.

Commodities are to continue to strongthen; USD to weaken.

More complex patterns

Even though the market fell as expected, the extent of the drop was unexpected. This prompted a trimming of longs, but I continue to recommed small longs, so long as today's lows hold. Medium-term, equity markets are bottoming for a strong and long (in time) bear market rally.

Commodity and FX markets are much clearer at the moment, and Copper in particular (second chart, below) is looking very bullish. Stops should be put at the lows. The USD should continue to weaken.

Early stages of a bull run in Equities

So far, equity markets are trading along expected lines, with DJI futures hitting the 8500 level and SP500 futures declining past the 875 level. I am still looking at this market from a bullish point of view, however I am somewhat worried that the market is taking so long (in time) to correct. On the other (bullish) hand, the VIX is flat on the day... In short, I would recommend small longs with tight stops.

The USD declined nicely, along expected lines. I expect this move to continue, however I think that EUR will begin to underperform GBP, NZD and other, somewhat riskier currencies.

Early stages of a bull run in Equities

Under the bullish count, wave 3 of a larger wave 3 (the strongest part of a move) is likely to start soon. It may start from current levels, or ,with equal probability, from 3% lower - around 875 in S&P500 futures, as low as 8500 in DJI futures, around 4700-4650 in DAX futures. I would use such levels as excellent entry points into longs.

There is a somewhat remote (at this stage) possibility of a move to new lows. Looking at large cap stocks individually, as well as some of the more volatile sectors (homebuilders, financials, basic materials) I cannot yet see that as more than about 20% likely. Crucial levels for a bull move are the low of last Friday at 817, however I would get quite concerned if we see anything close to 855.

The USD is continuing top building process, I expect levels in the high 1.30s on EUR/USD soon. Copper and Crude oil are also bottoming.

Early stages of a bull run in Equities

I believe that we are in the early stages of a bull-run in Equities, and that weakness should be used as a buying opportunity. I wouldn't be surprised if SP500 futures declined into the 880-870 region, and would be adding to my longs there. DAX could decline into 4600-4550.

Correction in Equities likely over, strong rally ahead

The one week correction to the ~20% rally from November lows likely finished on Friday, post the awful employment number. If this is the case, markets should rally about 20% more, with minimal give-backs and pauses. Any weakness should be used to add to more longs. Friday lows are now critical for this view.

Some markets failed to put in "complete" corrections, where the final leg takes out the price level (in our case, the low) of the first leg (notably - SP500, NASDAQ & DAX). The ones that didn't are likely to be the stronger ones. The ones that did, such as the DJ EURO STOXX 50, FTSE, CAC40, DJI are likely to be weaker.

Finally, please note that it is very, very likely that the USD will weaken (perhaps substantially) in the coming sessions (against everything - EUR, GBP, CHF, Copper, Crude, etc.) - so it might be wise to go long of the DAX, IBEX.

Correction - post mortem (just in case it is done here)

Just in case this is it for the correction, which does look plausible.

What to buy

The current ranking of stock indices, from the stronger to the weaker:

IBEX (SPAIN)
DAX
FTSE
SP500
DJI
NASDAQ
AEX
EUROSTOXX50
CAC40
SP MIB (ITALY)

So, it will be 2 units each of the top 3 and 1 unit each of the next 3 down.

Correction in Equities is coming to an end, rally ahead

The 1 week old correction in equities is likely coming to an end. Monday's sharp fall and the fall from Thursday night into today's NFP number were great, and made very profitable trades. The overlapping, horrible rally, while forseen and forecasted proved to be very difficult and resulted in a fairly unpleasant drawdown.

This correction might even be over WITHOUT taking out the Monday lows. Then again, it might. Either way, time to rest and look for entry points into longs - the coming rally will be quite long and powerful, and could take the market higher 20-25% in about 1.5 weeks.

Correction in Equities in force

Well, it might just (JUST) work. I have stops to close out ALL my shorts at today's highs. If equities manage to recover this dump in the last 40 mins of trading, there is some serious bullishness going on.

Some stocks, notably my favourite basic materials names such as Alcoa are already spotting really nice, COMPLETE, corrective patterns. I will start buying Alcoa and the likes tomorrow throughout the day. Other names I'd like to add is Berkshire Hathaway and Google.

Correction in Equities is likely to continue

Sounding like a broken record, I strongly believe that we will move below Monday's low. If this were to happen (and yes, it is a big IF), it will have been a beautiful pattern working out.

Below is a chart of the VIX, which has not retraced lower as much as S&P500 grinded higher. Through this bear market, when there have been disagreement between VIX and S&P500, the VIX "won". Its pattern is also clearer, and strongly suggests that it will move higher, the stock index lower. The natural level for the S&P500 to aim for is 796-793; from there, it should move significantly higher.

Correction in Equities is likely to continue

Well, B waves are never easy. This could be (yet) another interpretation, which is still pointing down. I have to say, I would find it very difficult to go long if we don't take out Monday lows. The structure would make little sense to me, and the rally off the Monday low would be utterly ugly.

Correction in Equities is likely to continue

I continue to believe that we are due a fall in G7 equity markets, but the window for that fall is closing. I closed most of my shorts at a modest loss last night, as US markets rebounded higher from an attempt to go negative mid-day.

I've re-instated an even smaller portion of those shorts this morning, as equities look like they are tracing out a "bear flag" or a "b" wave correction.

There is a remote danger that the USD is tracing out a triangular pattern, pending a spectacular, if short-lived rally. This may coincide with a fall in stocks.

Copper

Copper is basing, and I continue to build longs slowly and in small sizes. It will likely explode higher with stocks and with the impending USD weakness.

Correction in Equities is likely to continue

Stocks are moving higher than is comfortable, but still fitting very nicely with a bearish interpretation. If this is to play out as thought, equities should fall from these levels.

Correction in Equities is likely to continue.

The intermediate "b" wave is likely complete, and equity markets should now fall, but probably will hold above November lows. Depending on how/if they fall, it will be possible to call an end to this correction and begin scaling into longs.

I have been scaling back into my shorts through yesterday afternoon, however at this late stage of the game, and just before what I think will be a powerful rally, I decided to keep the shorts quite small.

I am looking to add high dividend paying stocks to my portfolio, among them the British bank Lloyds TSB.

Correction in Equities is likely to continue

I expect a very sharp drop of about 6-8% in G7 equities, which should be used as an opportunity to scale into longs.

Beware, shorting at this stage is a very dangerous game, as rallies off medium-term bottoms tend to be fierce.

I maintain a strong bullish medium-term bias, and believe that the trend has changed to positive until about April. A number of large cap stocks in Europe and the US look particularly good. I've added GE to a list of names I will be looking to buy.

The USD is putting in a medium-term top. CHF looks like it will be one of the stronger currencies, as it looks bullish against USD, EUR & GBP.

Correction in Equities in force

My view is unchanged - we are likely to bounce around these levels for today, and continue lower in the next few days. Medium-term, I am bullish for about 1000 on SP500; 5100-5300 on DAX. This week will likely produce excellent entry points for medium-term longs.

Some of my favourite medium-term longs will be Basic Materials and Industrials, such as Alcoa and US Steel.

All (?) in one go.

Well, I didn't expect the market to almost hit my targets in one day, but incredible happens regularly and credibly with increasing frequency.

Three things to point out -
1. I believe that we will see 800 this week.
2. That should be used as entry level (to be fine-tuned).
3. Saying that, there is a distant possibility that either this was the whole correction to the rally off the lows or is the beginning to the move down that will carry to new lows (the latter is the least likely case).

Because of this uncertainty (greater than usual, even in the last few weeks), I closed 75% of my shorts. I will look at the quality of the bounce over the next 24 hours, and might re-instate them.

Correction in Equities

The correction I have been on about for the past couple of trading sessions is likely to have begun. I think it is going to be quite deep, extending towards 800 on the S&P500 Dec'08 future. It will likely finish around Wednesday/Thursday.

Unchanged views

I believe that stocks are to move lower this week.
Longer-term, USD to move lower, commodities (copper in particular) to move higher.

EUR/USD - higher medium-term

EUR/USD is correcting lower, and may fall to about 1.2680. This is likely to coincide with weaker stock markets and a rally in US market volatility (VIX).

Generally, EUR/USD analysis similar to that of USD/CHF, in a previous post. Even if EUR/USD falls to new lows, which I think is highly unlikely - it is still worth accumulating.

Looking for a decline

If it is to happen, the decline should happen soon. For an immediately bearish scenario, the market should not advance beyond 2498 on DJ Euro STOXX 50 Dec'08 future (~3% from Thursday 27 Nov close). Targets are around 7.5% lower from here.

VIX falls impulsively. Should correct up.

The VIX fell in an impulsive fashion, and should now correct higher, as high as 71.50.

This will go well with a 10% down move in SP500 and a move higher in the $.

A 20% rally on weak volume

The broader market has rallied about 20% from the Friday intra-day lows. Some stocks, particularly large-cap basic materials (Alcoa; US Steel) rallied around 40% (!).

The rallies have taken shapes of impulsive 5 wave moves, suggesting that, after a correction, this move is likely to continue higher.

The declining volume of this rally also suggests an imminent correction.

Copper is setting up for a good rally, with first targets around 217 - around 27% from current levels.

Finally, the USD fell in a great, clear impulsive 5 waves from the high. In these markets, turning points are particularly tricky to pick, and with the current 50% retracement achieved, it might be a good idea to scale into USD shorts, but be prepared to add all the way to 1.22. Targets, on USD/CHF extend as low as 1.10 - 1.06