Weekend Surprise

Seems I just posted over Scott here – please go and check his quick update before reading this more extended post. Well, nothing like a little weekend surprise out of China to gap FX and futures traders while they’re locked out for a little over a day. Here’s the AUD/JPY which is now shaking out longs after gaping up almost one full handle:

Our new inflection point here now is 86.80 – in the meantime do not get caught in the middle of this. If you shorted the gap – congrats on your shiny brass balls but don’t overstay your welcome.

As equities have been painting new highs momentum and sentiment measures are telling quite another story. We’re starting with the spoos and then revisit some of our trusted correlation and momentum charts. To round things out I’ll throw in a few FX setups to keep you guys busy in the next day or two 😉

A lot going on here – first up Scotty seems to have beamed us above a cluster of prior resistance on the hourly and there’s nothing but air between here and 1419. Also, and maybe i should have drawn this on the chart – we are now above the neckline of an inverse H&S on the same panel. The daily has us above a prior NLSL, which is quite a bounce given that we painted 1386 just two sessions ago. We are also seeing 1419 here as our next resistance in the form of a NLBL plus the upper 25-day Bollinger.

Now I think it’s permissible to be long here but only with a small amount of positions and until we get near 1490. Among other reasons the chart above is why I simply cannot justify being long here for more than a few handles. We are looking the ratio between all NYSE symbols above their 50-day SMA versus all NYSE symbols above their 200-day SMA. This is a way of judging the quality and underlying strength of what is propelling us higher. And my point remains – this is a monster of a divergence and I frankly have no idea how to interpret it as this thing should have drawn us lower a long long time ago. And as I mentioned on the chart – perhaps this is starting to look bullish instead of bearish as a divergence at some point has to kick in, otherwise it’s showing us that the market can remain irrational a lot longer than any bears can remain liquid. But wait there’s more:

Here’s NYSE declining vs. advancing issues – initially the signal was supportive of the early stage of this winter/spring rally but we are now starting to fall behind. Nothing major but worth noting.

You’ve seen this chart before and after watching it for the past few weeks it’s time to point out yet another divergence we seem to be starting on the JNK:TLT ratio. Again, nothing major yet and maybe it’ll be faded in the end and push higher.

And here’s the one chart that has been fueling most of what we are seeing on the equities side. In terms of a technical pattern there’s really not much going on here but the implications of the Dollar unable to resolve a clearly bullish advance has been fueling much of the recent advance in equities. I know how Elliott wankers would count this thing but I am not yet convinced that we are subdividing and I don’t recommend hoping for a 1/2-1/2 resolution to the upside unless we at least make it back above 80.5. Thus far this thing is going nowhere fast.

Copper meanwhile is still coiling up – this is actually a bit exciting and technically speaking this should resolve to the upside. However if we get a support line breach then you can add this to our list of technical divergences.

If you are trading long term treasuries this channel on my 2Y/30Y yield ratio chart should be worth keeping in mind. So far it’s holding up and seems to giving a boost to what’s happening on the bond side. Again TBT is an ETF that runs inverse to 20-year treasuries and roughly with yields.

Before I run here are two FX setups: The EUR/USD is near its 1.3384 NLBL – now on the daily perspective I think it’s got a decent chance of breaching and pushing into 1.35. On the hourly side however we are pushing into resistance and if you are quick you may be able to squeeze in a little short swing trade here.

NZD/USD – looking a bit similar in terms of the daily setup. On the hourly side what I was proposing for the EUR/USD has already happened here and we are painting an engulfing candle right now. I would not touch that one unless it is done screwing around and heaves itself above 0.8263. Once it does we should be good to go until 0.84 or even 0.86.

Cheers,