MSCI World Index forming a massive 2-year H&S topThe MSCI Index appears to be rolling over in a right shoulder of a significant top pattern. One must be blind not to notice the similarities between this potential top and the chart top completed in 2008. Also, notice how the right shoulder held at the 6+ year trendline. The completion of the H&S top would also violate the trendline. A completion of this top could lead to a decline toward 1400. But I am NOT a doomsayer. In U.S. stocks I am NOT a bear and I am NOT a bull. In fact, I believe the S&Ps will remain in a range of 10% above the recent high to 10% below the recent low for the next five to eight years. Read More
Mark your calendar at August 11, 2015 as the day $USD/CNH reversed its multi-year trend
[Note: The Factor Service has been dedicated to classical charting principles for a time covering five different decades. As a proprietary trading firm willing to share our market analysis, we based our trading solely on chart construction. We do not take into account global macro fundamentals, research by brokerage firms or the type of nonsense jawboning featured on CNBC and Bloomberg. We are unabashedly committed to chart analysis.]
The Factor Service makes some very bad calls under our operating principle of “strong opinions, weakly held” — and I am not hesitant to admit it when wrong. But, we also make some marvelous calls — so I will not be shy when admitting when providence shines its face on us.
For weeks and months the Factor Service has regularly pointed out to research members the massive bottom under construction in the $USD/CNH. Accordingly, Factor has been buying this crossrate. When the IMF recently announced that any move off the peg by the Yuan was not to occur soon, we were not persuaded to exit our trade commitment.
Let’s review the charts.
The monthly graph shows that the Yuan has been gaining against the USD steadily since the early 1990s, declining from 8.7xxx to the 2014 low at 6.04xx. We have viewed this trend as pure manipulation by the Chinese government.
The weekly chart can be read in two ways, depending upon which school of charting one belongs. I have read the bottom as a 19-month ascending triangle, as shown below.
Another reading is that the weekly chart formed a massive 33-month cup and handle whereby the handle was an independent 18-month cup and handle.
In either case, the conclusion is the same — the USD/CNH has completed a massive reversal bottom. There was a sign in recent weeks that the devaluation of the Yuan was at hand, despite the insistence of Chinese authorities that the peg would remain in place. In the 1920s and 1930s, a technical trader named Richard Wyckoff spoke about the concept of the “hinge.” A “hinge” is a sign that a large price thrust is close at hand. A hinge is signified on a price chart by an extreme narrowing of a trading range with reduced volume or turnover. A look at the daily graph of $USD/CNY displays a 4-week period of hinge days.
The initial target in the Yuan is 6.50xx or so, with a longer term price target of 6.80xx. Ultimately the $USDCNH could reverse the entire trend since the 1990s and move to 8.27xx.
Members of the Factor Research Service receive regular analysis of chart developments in global equity indexes, futures markets and forex. For information on Factor members, click here.
Dislaimer: Factor is long USD/CNH
Markets: $USD/CNY, $USD/CNH
USD/CNY crossrate is currently at 6.2121 Yuan per USD
Within 12 months the crossrate should trade at 6.50xx Yuan per USD
Global macro reasons
- It is in the interest of Chinese manufacturers and exporters to have a weaker Yuan (stronger USD/CNY)
- China is a massive USD long, owning $1.25 trillion in U.S. Bills, Notes and Bonds. A bull move in the USD/CNY would greatly benefit China
Of course, the above reasons do not guarantee a bull move in the USD/CNY.
A multi-year chart is presented first to provide perspective.
The weekly chart displays a possible 30-month cup and handle bottom (black lines) wherein the handle is an independent 12-month cup and handle pattern (red lines).
From a classical charting framework, the weekly graph displays a possible ascending triangle dating back to the Jan 2014 low. Ascending triangles are typically resolved by a bull trend. A decisive advance above 6.30xx would complete this bottom and launch a bull trend in USD/CNY.
Caveat: Timing will be everything in this trade. An advance from 6.2100 (current rate) to 6.500 represents a 4.7% price change. However, the cost to carry the trade at present is 1.7% per year.
And only under the watchful eyes of the incompetent U.S. Justice Department ….
Today I received an unsolicited offer to participate in a $20 million private offering for PINDX, a “cannabis focused investment holding company.”
This offer brought to my mind the Colorado State song by the late John Denver. Click to hear.
No doubt we will someday have a cannabis futures contract. Perhaps George Soros will underwrite the launching of the contract given his sponsorship of the drug — see here.
The U.S. Dollar / Indian Rupee is at a critical juncture on the price charts
Some stocks, foreign exchange crosses and futures markets chart better than others. The USD/INR currency crossrate has been a textbook example of classical charting principles since 2008. A number of remarkably well-defined chart configurations have occurred during this period.
The bull trend in the cross began in 2008 by completing a near perfect rectangle bottom, as shown on the closing price chart below. Using a closing-price chart eliminates intra-day volatility and displays the true price of a currency cross. Note the retest in Apr 2008.
After topping in Mar 2009 (resulting in a H&S top that did not fulfill its implications), the subsequent decline terminated with a 17-month rounding pattern on the weekly graph. This pattern was completed in Sep 2011.
A 10-month symmetrical triangle was completed on the weekly graph in May 2013 and led to the final blow-off top in Sep 2013.
The crossrate has been forming a continuation inverted H&S pattern since Sep 2013, as shown below on the weekly OHLC graph.
The market has been creeping just under the neckline for the past seven weeks, making some intraday jabs through this important resistance line. However, the cross has not been successful in completing this pattern. This hesitation cannot last forever. The chart is reaching a critical juncture. Either a decisive close above 64.50 will complete the H&S and establish a target of 69.50, or the upside momentum will fail. In this case, the daily chart would likely morph in an unpredictable manner.
I am a buyer of the USD/INR if a decisive upside breakout occurs. If I become a buyer, my protective stop would likely be to under 63.40. My sizing would be such that my risk would be about 60 basis points.
This post represents the type of analysis provided on a regular basis to members of the Factor Service. I am happy to report that India is represented in the Factor community, as shown on the map of Factor members below.
The long-term charts have completed and confirmed a major top in the Kiwi
[Note: Factor LLC trades futures and forex markets based on classical charting principles formulated in the 1920s and 1930s. Factor LLC does not consider global macro fundamental factors in market analysis or speculation.]
The decline in January 2015 completed a 45-month rectangle top on the monthly chart (first chart). This top can be seen in a larger perspective on the second chart displayed.
As a general rule, trends on long-term charts follow a concept known as the “swing principle.” The swing principle holds that major thrusts within a larger trend tend to be equal in length. Applied to the New Zealand Dollar, the decline from the April 2015 high should equal the distance traveled in the decline from the July 2014 high to the February 2015 low. The Swing target in the $NZD/USD is in the area of 60 cents.
The daily chart shows that the rally into the April 2015 high was a hard retest of the rectangle top. The decline on May 28 is a confirmation that the 45-month top interpretation is correct. Major resistance should be uncovered on any rally back toward $.7200 to $.7300.
Disclaimer: Factor LLC is short the New Zealand Dollar
[scribd-doc doc=”262584889″ key=”VAhl3p6sSQ6U5iqMFrxA”]
The 2014/2015 Soybean chart strongly suggests a decline to $7.50 and lower
[Note: Factor LLC is a proprietary trading and research firm dating back to 1981 at the Chicago Board of Trade. Since inception, Factor LLC has traded its own capital using classical charting principles. Sometimes the charts are right — sometimes they are wrong. But when a large weekly chart pattern presents itself in the grain markets, traders, farmers and ag businesses must be alert for the possibility indicated by the chart.]
Factor LLC has created a proxy chart for the 2014/2015 Soybean crop year by splicing together the life-of-contract graph of the expired 2014 November Soybean contract with successive delivery months.
The picture is not pretty. Farmers….ignore it at your own risk!
The proxy old-crop Soybean chart completed a massive 3-1/2 year H&S top in mid-July 2014. The market then drifted sideways until late August before drop sharply to the $9.04. Soybeans then rallied into a mid-November retest of the neckline of the H&S top. The July 2015 contract is presently about $1 lower than the mid-November high.
Factor LLC believe the Bean market is just buying time before a sizable decline. There is a strong seasonal tendency for Soybean prices to top when planting is complete and bottom when the crop is in the bin. The seasonal should exert some upward or sideways pressure through early to mid May. Farmers should use any strength during the next six weeks to sell old crop Soybeans and hedge new crop Beans. The pattern target of this H&S top to $8.25. The swing target is to $7.25.
Of course, farmers will say to themselves and each other…
“No way can Beans go to $8.25 much less $7.25. Beans have averaged $12 (at the CBOT) for seven years and I cannot make money at $8. Besides, I have $1 million in new equipment to pay for. “
Unfortunately, the market could care less about the cost of production in the short term. The chart below tells a real story. From 1983 through 2007 the average carryout-to-usage ratio of Soybeans was 12.5% — prices at the Board averaged just north of $6.50. The past seven years have been historic, with an average carryout-to-usage ratio of 4.7%. This is why prices have been high since 2007 — and the only reason. The USDA projected carryout-to-usage ratio for the 2014/2015 old crop Beans is 10.4%. But there is more bad news. The current Soybean/Corn ratio is 2.6 to 1. This will encourage farmers to plant even more acres to Beans than were reported today –setting up another record harvest in the fall.
The chart of the November 2015 Soybean contract exhibits a descending triangle. There is room for prices to rally toward $9.80 to $10 to fill out this triangle. The spike down on Tuesday after the planting intentions report no doubt trapped some short sellers. A rally will be needed to wear out the premature bears. Will prices play out as I have marked on the chart? Probably not, but it is something to watch for.
I have no desire to be short futures at this time. I will watching this market for a shorting opportunity. A decisive close below 940 would be such an opportunity.
Markets: $ZS_F, $ZM_F, $ZL_F
Factor LLC is a proprietary trading firm dating back to 1981 at the Chicago Board of Trade. Factor’s trading is based almost exclusively on the classical charting principles laid down in the 1930s and 1940s by Richard W. Schabacker, John Magee and Robert Edwards. Classical charting is an approach to market speculation based on the premise that certain geometric configurations, when plotted and identified on price charts, can produce possible outcomes. Factor LLC shares the research it conducts on futures, forex and global equity markets with individual and institutional investors via email communications. For more information on Factor’s research and trading services, please click the “Subscription” link on the menu bar.
The roar of the Asian Tiger is getting ever louder
The Asian stock indexes appear poised for substantial gains. Japan is leading the way, but stocks in Taiwan, Singapore and China appear ready to play some catch up.
The charts below are presented with only brief comments.
The Shanghai market is leading the way in China, as shown on the following graph.
Other charts of interest include iShares China Index ($FXI), Goggenheim China Technology ($CQQQ), Global X China Financials ($CHIX) and the Hang Seng Index ($EWH, $HSIX).
The Taiwan Futures Index ($EWT, $STW_F) has already flashed a major buy signal. The Singapore Futures Index ($EWS, $SSG_F) appears ready to attack the upper boundary of its congestion zone. A resolution of this trading zone would result on substantial advances in Singapore equities.
In the world of chart analysis there is a ton of BS being peddled these days. The Factor is not. Try it … we think you will like it. See what the Factor had to say in January about global stock markets here.