1. VIX is filling the gap from when the Feb-Mar crash begun. Volatility is getting supressed when things actually look very fragile with Central Banks having nothing under control. A VIX spike (big move down for stocks) wouldn't be a surprise here for reasons I'll explain soon.
2. DXY looking strong here. The 50 DMA has turned up and dollar strength could be a problem here. Watching other charts tells me things are OK, so the weakness comes from specific currencies. Some currencies are doing very well while others very poorly and there is no concrete way to go about it.
3. CNH/CNY however are very clear as to what is going on. They seem to be in agreement with the DXY. The relentless USD downtrend has been broken and the USD is showing signs of life. Despite the QE, despite the massive stimulus... the USD hasn't gone down. That's not a great sign. Sure most currencies are getting devalued, but if the USD is so strong and could begin an uptrend we have a problem...
4. Essentially most of that is attributed to US long term rates going up faster than anywhere else. This could be happening for many reasons, right or wrong. Inflation might be here, inflation might be coming... but it depends on which country you are looking at and in what form you are seeing it. Is it because of supply shocks (i.e low Oil and Copper production), currency debasement, loss of faith in the currency or trade wars etc? It could be many combined, but when we see bonds go down it could the fact that we have a lot of supply coming in and not enough demand. Maybe we had such a big bull market that people are taking profit. However the impact this has on the market is on many different levels and it comes down to how the market is structured, stock valuation models, different investment strategies and so on. So the more yields go up (bonds down), the bigger the problem becomes if it is relentless.
5. Gold has been going down because real yields have been going up and people have been taking more risk. Why hold gold and not other more useful commodities or riskier assets in general? Gold going up isn't a good thing. It means something is not going well. Over the last few days Gold didn't go down along with bonds, which is worrying. It is stuck between and uptrend and a downtrend, however it is clear it is currently in a downtrend as it is below all key MAs (50-200-300 DMAs).
6. Oil has had a massive rally and I can't tell whether it is over for now but it could be. Very high oil prices in the current environment wouldn't be ideal, but hopefully because more oil is being produced, not because demand is down. Low oil demand means low growth and bad things in general going on. High oil demand means growth and go things going on. Oil got above the 2019 highs, swept them, retested them and went down quite a bit. It also crossed above the big diagonal downtrend from the 2008 high all the way down here and then came back down. If it closes like this and goes lower, I can't rule out 52$ or even 42$, but if it starts going above 68 it could quickly accelerate higher.
7. RUA is the index that has the top 3000 US stocks, spot. It is just an index and doesn't track futures but spot, so it isn't open 24/5. Stocks are still in an uptrend, which Japanese and European stocks showing quite a bit of strength. We've seen quite a few US stocks do well, but if the top US stocks struggle because of higher rates... there could be a big problem. If bonds start selling off hard, the borrowing costs for many companies will skyrocket. That is clearly a massive issue right now. So is a 20% like the one we had in 2018 possible? Yes it is. Do I think stocks could still go parabolic? Of course, but it might take some extra time to get there. We need bigger actions from central banks and eventually bonds slowing down and go up slowly. For now we could get another 5-10% correction, test the trendline and go higher. Until I see the market close below I think up is more likely, although I am more cautious.
2. DXY looking strong here. The 50 DMA has turned up and dollar strength could be a problem here. Watching other charts tells me things are OK, so the weakness comes from specific currencies. Some currencies are doing very well while others very poorly and there is no concrete way to go about it.
3. CNH/CNY however are very clear as to what is going on. They seem to be in agreement with the DXY. The relentless USD downtrend has been broken and the USD is showing signs of life. Despite the QE, despite the massive stimulus... the USD hasn't gone down. That's not a great sign. Sure most currencies are getting devalued, but if the USD is so strong and could begin an uptrend we have a problem...
4. Essentially most of that is attributed to US long term rates going up faster than anywhere else. This could be happening for many reasons, right or wrong. Inflation might be here, inflation might be coming... but it depends on which country you are looking at and in what form you are seeing it. Is it because of supply shocks (i.e low Oil and Copper production), currency debasement, loss of faith in the currency or trade wars etc? It could be many combined, but when we see bonds go down it could the fact that we have a lot of supply coming in and not enough demand. Maybe we had such a big bull market that people are taking profit. However the impact this has on the market is on many different levels and it comes down to how the market is structured, stock valuation models, different investment strategies and so on. So the more yields go up (bonds down), the bigger the problem becomes if it is relentless.
5. Gold has been going down because real yields have been going up and people have been taking more risk. Why hold gold and not other more useful commodities or riskier assets in general? Gold going up isn't a good thing. It means something is not going well. Over the last few days Gold didn't go down along with bonds, which is worrying. It is stuck between and uptrend and a downtrend, however it is clear it is currently in a downtrend as it is below all key MAs (50-200-300 DMAs).
6. Oil has had a massive rally and I can't tell whether it is over for now but it could be. Very high oil prices in the current environment wouldn't be ideal, but hopefully because more oil is being produced, not because demand is down. Low oil demand means low growth and bad things in general going on. High oil demand means growth and go things going on. Oil got above the 2019 highs, swept them, retested them and went down quite a bit. It also crossed above the big diagonal downtrend from the 2008 high all the way down here and then came back down. If it closes like this and goes lower, I can't rule out 52$ or even 42$, but if it starts going above 68 it could quickly accelerate higher.
7. RUA is the index that has the top 3000 US stocks, spot. It is just an index and doesn't track futures but spot, so it isn't open 24/5. Stocks are still in an uptrend, which Japanese and European stocks showing quite a bit of strength. We've seen quite a few US stocks do well, but if the top US stocks struggle because of higher rates... there could be a big problem. If bonds start selling off hard, the borrowing costs for many companies will skyrocket. That is clearly a massive issue right now. So is a 20% like the one we had in 2018 possible? Yes it is. Do I think stocks could still go parabolic? Of course, but it might take some extra time to get there. We need bigger actions from central banks and eventually bonds slowing down and go up slowly. For now we could get another 5-10% correction, test the trendline and go higher. Until I see the market close below I think up is more likely, although I am more cautious.
