Yep, that’s right! It’s back, the Ultimate Investor Update #11.
The point of this article is to quickly review global finance and determine if it’s safe to own risk assets. I do that by covering 3-5 markets each update. Sometimes I dive deep into a particular market because a huge narrative has surfaced unexpectedly. Often times, it’s just a quick summary that anyone can hopefully follow.
Holy Grail Markets To Watch – technical analysis driven
- Bond Market (10yr US treasury)
- US dollar (dxy)
- Crude Oil
- Bitcoin
10yr US treasury
General market wisdom goes like this, if inflation is a threat, interest rates should go up. Well, is that the case right now? A quick look at the chart shows two previous highs in yields, meaning inflation was more of a concern back in March and May. So, all the hype about inflation today is nonsense, according to the bond market, or transitory.
US Dollar
At the moment, the currency markets are a mess individually speaking. The USDCAD is dropping like a stone while the USDJPY is ripping higher along with the long trek lower for the EURUSD. However, the macro view for the US dollar (DYX – a currency basket index) looks to be drifting higher. This is supportive to stock prices.
Crude Oil
I’ve never seen a stock market rally last without the participation from the energy sector. Put another way, if the price of oil is ripping higher economic growth must be pretty good. Well, we’ve got the wind at our backs thanks to the monster rally in crude oil. Q3 earnings might be a good buy the rumor sell the news kind of trade. Regardless, the oil rally is catching the attention of big money and tourists are still waiting for a “pullback.” If you’re looking for an entry point, the $76 – $77 level looks reasonable.
Bitcoin
Never in my life have I ever witnessed a market as volatile as Bitcoin. I’m also sure gold bugs are crying the blues as “safe haven” money flows have found a new home. Nevertheless, the massively important high at $64,895 looms ahead. The setup looks pretty straight forward: 1) wait for a break above resistance before buying or adding, or 2) setup buys at the key support levels. Either way, the trade execution seems pretty manageable.
Conclusion
In the final analysis, the S&P 500 just completed its first legit correction of the year. Better yet, the correction matched perfectly with the seasonally weak Sept 23rd – Oct 9th time period. The setup into year end looks good for the stock market. Thankfully China’s real estate meltdown appears to be contained. I say that with a grain of salt.
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