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business newsStrong Action in Treasuries, Ugly Action in Euro Continue to Paint Bleak Picture for Risk Assets
While we may see some upside action in US stocks due to oversold conditions and traditionally bullish seasonal factors, prepare for the continuation of recent problems, come 2012.
PRINT
- The TNX appears destined for 1% based on this long-term downtrend channel.
- Given the bleak outlook for solutions out of Europe and the prospects for a slowdown in global economic conditions as a result of that mess, it should come as no great shock to hear / read that rates could continue to move down to the 1% level.
- At some point, it becomes a force behind massive allocation out of bonds and into stocks. When, though?
- Based on the “5 = 1” rule in Elliott Wave Theory, the bottom of wave v of 3 should be down at around 1.51%. That would correspond well with the 138.2% Fibonacci projection line for wave 3. A move lower like that in the short-term probably doesn’t mean good things for risk assets.
- So far, the messages out of the bond market have been accurate, so we must heed the apparent warnings coming from these charts.
CURRENCIES
The Euro / US Dollar cross (EURUSD) still has plenty of work to do on the downside in the long-term.
- Just a quick reminder that the long-term chart of the EURUSD is telling us that there is much more room to the downside before everything is said and done for the long-term.
- I’m still looking for an eventual run to par (1.00000) for the EURUSD. It will not be a straight shot lower, however, and short-selling the euro should only be done on rallies. When will the next rally commence? See the next chart and comments below for my best estimate.
- The daily chart of the EURUSD above shows that wave v of 5 may be in progress. The downside target for this wave (based on wave v being roughly equal to wave i) is down at around 1.27800.
- Once that level is tested, then a rally back up towards the 1.32 to 1.36 level should commence (short sales can be attempted once this range is tested).
Overall, the “smart money” in the fixed income and currency markets is telling us that we should continue to expect miserable trading action in the risk markets. Instead of complaining about it, we must (after first tending to capital preservation needs) look for ways to profit from it. That would mean owning the US dollar and Treasuries and shorting stocks, risk-oriented commodities and the euro currency crosses (all of which should be done only after counter-trend moves occur).
Twitter: @tttechnalytics
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