Friday, August 1, 2014

Europe Falling Apart

We are no longer worried about China, it is Europe.  Europe doesn't have the growth, and they are Japanizing their bond market, so that you have super low bond yields and deflation.  You cannot get a growing stock market in a deflation.  Look at what happened to Japan in the 1990s.  That is the future of Europe.  It was Europe that caused the big gap down in futures ahead of the nonfarm payrolls.

The bond market is now acting nervous.  It was acting quite confident, going up despite stronger equities, boosted by the drop in European sovereign yields.  Now that you have dropped to almost 1% on the Bund yields, you are going to have a tough time going lower.  If bonds wants to get stronger, it will have to do on its own strength, not from inherited Bund strength.  And it seems to lack the buying power, as we have gotten a change in character, with bonds going down with stocks, a rare occurrence this year.

I am expecting this pullback, which started last Friday, to last 12-13 trading sessions.  We are on trading session #6.  So expecting a potential bottom around Tuesday, August 12, +/- 1 day.

I will buy dips during this down trend, and sell rallies.  Buying levels are ES 1900 and below, ES 1885.  Sell levels at around ES 1945.

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