Notes From Underground: Month-End, Quarter-End … Oh My

In Thursday‘s post I am reissuing part of a post from June 11 in which I cited a very important signal from the Nasdaq 100 futures. The signal suggests the equity markets have been in a much more defensive mode as rallies have failed and new selling has emerged. Well tonight I warn of a possible new development and that is in the DAX FUTURES. The German index has been my favorite long equity position because the fundamentals are most positive for Germany: negative interest rates, current account surplus and a very strong fiscal position. The strong EURO this week seems to be a potential drag for German stocks, but the biggest factor is that the continued use of negative interest rates at the Draghi-led ECB makes the high-yielding German equity market a desirable choice for investors. HOWEVER, IF THE DAX DOES A MONTHLY OUTSIDE REVERSAL THIS WILL SIGNAL A MAJOR WARNING FOR ALL GLOBAL EQUITY MARKETS.

Some pundits who pretend to know about Europe, the ECB and/or Mario Draghi filled the airwaves with nonsense in trying to explain why the S&Ps, NASDAQ and DAX were under pressure today. They were all citing the higher German inflation numbers this morning as a possible reason for the ECB to change its QE as a possibility. Readers of Notes From Underground know that is exactly what Draghi wants: Higher German inflation so as to make the other EU nations somewhat more competitive within the EU. German inflation provides even more impetus to own German assets in a negative interest rate environment. The interest differential on the SEPTEMBER eurodollar-euribor spread is its widest ever at 166 basis points and yet the euro continues to strengthen against the U.S. dollar. This is something to closely watch.

**The KEY TO THE DAX ON FRIDAY is the possibility of a monthly reversal as the DAX has made ALL-TIME HIGHS THIS MONTH. If the DAX closes below 12442.5 tomorrow it will be a similar signal to the Nasdaq 100 weekly reversal. If the ECB has any  firepower they will be intervening in the sovereign debt markets tomorrow. Watch for an early fireworks display!

Wake Up! Wake Up! For Your Light Has Come! This line comes from the Jewish liturgy of welcoming the Sabbath. I use it here to make a note to my readers about a possible signal that the NASDAQ 100 sent on Friday. Now I don’t hold myself out as anything but a third-rate TECHNICIAN (reader of chart formations), but having been taught by one of the greatest technical minds (thanks H.G.), I know to watch certain formations for signals in a POSSIBLE change in sentiment. THE CHART THAT CAUSES CONCERN NASDAQ 100 made ALL TIME HIGHS LAST WEEK BUT CLOSED BELOW THE PREVIOUS WEEK’S LOWS. Do I know when the market will reward a short position?

No. Do I know the timing of the beginning of a counter-trend move? No. I just know that a warning has been given, which may signal that a long DOW short Nasdaq play may be profitable. Maybe it is long the SPOOS and short Nasdaq, but I have been told to awaken from a complacency induced slumber. The NASDAQ provided the signal but the pundits will retort that the DOW closed higher on the day and the SPOOs were virtually unchanged. The end result for the bullish choir is that this is nothing but a healthy rotation out of the overbought tech stocks. Maybe that is correct but when I see certain historical formations I awaken to heightened market risks.

Notes From Underground has not been bearish equities and has maintained that the global central banks’ QE activities have kept global equity markets floating on the proverbial “sea of liquidity.” But to give strength to the warning sign, it happened on VERY HEAVY VOLUME. I am not recommending to rush out and sell your equity holdings or put on a massive short position. It is your job to determine the risk levels you feel comfortable with. I’m merely providing insight from 40 years as a global-macro trader. I am sure there will many comments so hopefully insights and ideas will be shared.

As weak as the NASDAQ was many correlated trades failed to materialize: gold weak, dollar firm, bonds lower/yields higher, and of course, the DOW finished up. The Nasdaq may be a false signal but the large volume numbers are telling me to pay attention. The pundits were blaming the steep drop in the Nasdaq on the Apple announcement but if our economy and equity markets are driven by the potential sales of the newest GADGET we have far greater worries. Dust off your charts and get to work.

 

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7 Responses to “Notes From Underground: Month-End, Quarter-End … Oh My”

  1. Bill adams Says:

    Yra,
    I’ve been enjoying you now for about a year thanks to the recommendation of my good buddy Robert Syp. You are way pushing my box and I thanks you for your wonderful insight .

    Much appreciated!!

    Happy 4th to you and yours.

    Bill A

    • yra harris Says:

      Bill Adams—an appropriate person for a July 4th wish—thanks for your support in this endeavor—

  2. ShockedToFindGambling Says:

    YRA, how do you interpret 2s/10s which bottomed about 78 and has gotten to about 91?

    • yra harris Says:

      Shocked–corrective at this point and I have warned for four years 73 area was going to be support and it has been .But with the market’s sudden fascination with Draghi the long ends got a beating this week—it was a very crowded position

      • ShockedToFindGambling Says:

        Yra, could be corrective, but 2s/10s did an outside week on weekly charts and most of the tech indicators now point toward steepening.

        If can steepen in a rising price bond market, would be very significant IMO.

      • Yra Says:

        Shocked –that is exactly what I am waiting to see for it would indicate thta the u.S. is shrinking the balance sheet and leaving rates alone.Europe will be a different story but it could keep the curve from steepening

  3. Rob Syp Says:

    Dax chart

    http://www.futuresmag.com/2017/06/30/dax-stocks-rebound-after-big-sell

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