China Below Expectations

The data out of China has been soft at best. See article here at Business Insider. What will come of the tyger that burns so bright?

When I think of China it reminds me of this poem from my childhood by William Blake.

The Tyger

Tyger Tyger, burning bright,
In the forests of the night;
What immortal hand or eye,
Could frame thy fearful symmetry?
In what distant deeps or skies.
Burnt the fire of thine eyes?
On what wings dare he aspire?
What the hand, dare seize the fire?
And what shoulder, & what art,
Could twist the sinews of thy heart?
And when thy heart began to beat,
What dread hand? & what dread feet?
What the hammer? what the chain,
In what furnace was thy brain?
What the anvil? what dread grasp,
Dare its deadly terrors clasp!
When the stars threw down their spears
And water’d heaven with their tears:
Did he smile his work to see?
Did he who made the Lamb make thee?
Tyger Tyger burning bright,
In the forests of the night:
What immortal hand or eye,
Dare frame thy fearful symmetry?

~ William Blake

Will China lead or is there trouble ahead?

There is no doubt in my mind that China will lead economically in the coming years. The question is in what direction?

This link is to a video about the prospects of China’s OBOR project that holds so much promise and yet, faces so many hurdles. Belt and Road – China’s Latest Project via RT

OBOR daily ETF. One I follow on my China watch.

Shanghai Composite daily

Hang Seng v Australian ASX weekly. This is one of my correlation charts. To my surprise the ASX has rallied to catch up to the HSI. See how it goes from here.

China’s Gov Bond yield curve

The short end of China bond yield curve is quite concerning and the long end is flattening but not much change in 6mths. Have to keep a close eye on this.

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Tech Watch

Just keeping an eye on the FANG & FANMAG’s. We are seeing signs of a potential retracement. There is nothing to indicate any major downside at this stage. One of the biggest threats to the market is retail investors have turned to passive products such as ETF’s. The main problem with this type of passive melt-up in markets, is people go to sleep and feel that they cannot go wrong. The problems will become evident when there is a sudden need to off-load these types of products. Will there be someone there to take the other side? That remains to be seen. We have not seen passive investments at these levels ever before.

“Bulls don’t die of old age, they die of fright.”

My FANG composite on the left is running rich of the Nasdaq index. Should expect a retracememnt. This would be more healthy for the market in the longer term.

On the right are the FANMAG’s which are flat at best.

NDX daily. You can see the Nasdaq VIX at the bottom of the chart is nowhere near the red danger line at 22. This uptrend has not been in danger for the whole year.

NDX weekly MACD is crossed up but could see a consolidation. Certainly a full bullish look at this time.

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Crypto’s Update

What a week in the crypto’s following the cancelled SegWit2x. Bitcoin sold off and suddenly Bitcoin Cash was the flight to safety play. Mostly Korean buyers. They got in quick and got out again just a fast.

Bitcoin Cash daily.  What a ride! +600% gain 15 days.

Bitcoin weekly in consolidation looking for a retrace back to the support. A break to a new high is unlikely at this stage.

A beautiful continuation pattern going back to late 2016.

Ethereum weekly in consolidation

Litecoin weekly consolidation

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Dow Theory

Dow Jones v Transportation Index is one that I follow very closely. It can show problems emerging in the economy well ahead of the overall market.

Dow Jones Index v Transportation Index weekly. Sometimes transports lead the market and sometimes they lag the market. What we know from looking at this chart is that the upside in the Dow Jones is likely to be limited at best. A turn from over sold in the Dow and Transports can also be a very good dip buying opportunity in stocks.

FDX daily. This is one of my bellwether stocks. It has broken this long term ascending wedge. It is not on my month swing high yet but could be a candidate for early 2018 the way things are looking.

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Charts Of Interest – Yellow Alert

Credit conniptions! Well what a week we have ahead. We are on high alert here. There are so many ‘black swans’, that it is likely to be a now rare ‘white swan’ that is the catalyst for a sell-off. That is just the feel that is in the air. You don’t want to trade what you think will happen, you trade what the method is showing. Take it as it comes.

We have had record low volatility. 3 months straight without -2% and 12 months straight without a -3%. This is not a good record. This is very bad.

Nikkei 225 daily very over extended. Possible reversal.

SVXY daily potential double top.

VXX 4hr coiling for breakout.

VIX 5min strong into close on Friday. This means more put options are being bought in anticipation of downside in stocks..

VTI daily MACD divergence.

See all charts below Continue reading

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Volatility Watch

This spike in volatility escalated quicker than I expected. I was expecting something next week. This was driven in part by the Trump tax plan delay and jitters in the Nikkei and Europe. The short VIX crowd is something I have been talking about for quite some time. At some point they will capitulate and run for the exit.

SVXY daily could be a double top. Price is 74% above the monthly kijun sen. That gap will close at some point. If this daily price gets below the kumo, that is when there is serious chance of downside in stocks. A pull back in SVXY but still above the kumo, is just more of  a correction in stocks rather than a full blown reversal.

VIX daily lifted off support but was hammered back down. The MACD is on the center line. If the MACD gets above the center line, then you can see some downside in stocks. The VIX shows the implied volatility in the options market, so not a direct correlation to the stock market index.

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Gold Silver Copper Oil

It’s been quite an interesting week. Most of my focus has been on stock earnings. There has been a bit of a blowup in high yield credit, so we must watch carefully because when oil is up like this, you would not expect yields to be rising sharply in junk bonds. We have known for quite some time, that there are serious issues in China with the credit markets and that is just the start of it. The yield curve in China has already gone inverted so there could be some serious problems ahead in 2018. Have to just stay vigilant and watch for these warnings signals to gain pace.

USDJPY v gold daily. This chart shows the correlation between gold and the yen.

Silver daily stuck in a range.

Copper daily is counter trend.

Oil holding the breakout with concerns in Saudi Arabia.

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Crypto’s Update – Breaking News

Crypto’s update. Some very interesting developments in crypto’s. This is the wild west. If you are afraid of these frontier type of products, it is because you don’t understand what they are about. In that case it is better stay away.

I will be trading the Bitcoin futures options when they start depending on the liquidity. At this stage it looks like they will be available by year end. You can get a CBOE demo account and try it, it does not cost anything.

Breaking News: It looks like SegWit2x has been cancelled at this time. If you want to follow the updates about it, Boxmining is very good.  He does not talk a lot of nonsense, just the facts.

Bitcoin daily and weekly

Ethereum daily and weekly

Veritaseum 4hr and daily

Litecoin daily and weekly

Ripple 4hr and daily

Lisk 4hr and daily

Monero 4hr and daily

Dash 4hr and daily

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Perfect Put

This is a perfect example of using options to trade earnings. Getting just a few trades like this per month you can easily make a good living.

PCLN daily.

Couldn’t trade the first earnings shown here with put options because the stock was in a strong uptrend. It was a long exit ahead of earnings.

The second earnings was a mth swing high so this earnings was shortable or with put options based on technical and fundamentals.

The third earnings was the rights shoulder of a head and shoulders, so defiantly a high probability short here. As you can see the analysis paid off.

PCLN weekly head and shoulders.

PCLN mth swing high. Nice wide of the flat kijun sen.

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Small Caps

Not much going on this week. Keeping an eye on small caps. Nth Korea is planning the biggest ever test of their weapons program. They are ready to launch the test imminently. Have to just be ready for anything. Managing risk is first and foremost.

RUT mth is 22% above the kijun sen. This gap will close at some point.

RUT weekly is in consolidation.

RUT daily has had a double top. Seeing some retracement.

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