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Bullish Trends Are Still Holding Up in Risk Assets for Now, but How About October?


It's time for risk assets to start building their strength into the end of the month/quarter, right? This week has been very ho-hum, but expect some better action in the next nine calendar days. After that, however, be careful!


Emerging markets bonds also still holding support – so far.

The other non-Treasury fixed income chart I like to monitor as a tell for what's going on in the "risk on / risk off" fight is the iShares JPMorgan US Dollar Emerging Market Bond ETF (NYSEARCA:EMB). I've featured here multiple times over the last year the fact that EMB has a pretty good support / resistance level from its 14-day moving average. EMB did have a false breakdown below the average in August, but it quickly recaptured the average and made new highs. Now, it looks like EMB has been moving a bit more sideways than higher over the last several sessions – which is actually pretty good compared to JNK for example. The main thing upon which to focus, though, is the fact that EMB is still trading above the moving average support. Until that breaks, the bulls can still hang their hat on this chart.

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Euro / US dollar has begun to correct as expected. Now how much downside will we see?

I noted on Monday that I felt the EURUSD would correct lower after the very strong rally that it had from July to just a few days ago. Well, the correction appears to have begun. The question is how far will the correction go on the downside? Based on the idea that the EURUSD will eventually retrace the entire wave (i) move, this downside in the short-term should take the cross low enough (for the b wave) so that the c wave of the larger wave (ii) will terminate no higher than 1.34855. That would mean that wave b (the current move lower) should terminate all the way down at around 1.23802. That seems like a pretty rough move to the downside, but all it's doing is partially retracing the rally that just took place over the last 45 days.

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No positions in stocks mentioned.

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