Candlestick/Breakout Patterns Workshop (SG)

Don’t miss this upcoming …

7-HOUR CANDLESTICK &
BREAKOUT PATTERNS WORKSHOP

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Next Workshop in Singapore will be:
Saturday 26 May, 2018 from 9:30am to 5:30pm

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Public Admission Fee: S$199 (1 set of cards included)
Pattern Trader Graduates: F.O.C. (cards not included)

VENUE:
51 Cuppage Road
(Formerly Stahub Center),
Acc Eduhub, Level 3,
Vibrant Room 3.

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Reserve your seat for the next session now!

For bookings, costs and queries:

http://pttpcsboplp.pagedemo.co/
 (For classes in Singapore)

*LIMITED SEATS, SO BOOK EARLY!!

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PATTERN TRADER™ TUTORIAL INTRODUCTORY SESSION

We’re having one more Introductory Session to the Pattern Trader™ Tutorial June 2018 Batch on May 23rd.

Book that date NOW, bring a friend/relative and really do yourself a favour by knowing what you really need in order make it in this business.

After more than 12 years of educating professionals in the arts and sciences of Finance and Economics, I don’t need to bullshit you into knowing that this is the only financial education you should consider.

If you’re looking to make a huge difference in your financial life, consider attending the Pattern Trader™ Tutorial Introductory Session first.

If you want to know more about the Tutorial, read here: The Pattern Trader™ Tutorial 2018

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Click here now to make a huge difference in your life:
Pattern Trader™ Tutorial Introductory Session

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Find out more about the Pattern Trader Tutorial here:
Pattern Trader™ Tutorial 2018

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The schedule for the June batch is here:
Pattern Trader™ Tutorial Batch 94 June 2018

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Weekly Market Update – 14 May 2018 BMO

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WEEK IN REVIEW – 07 to 11 May 2018: Buyers Re-emerge Following Q1 Earnings Season

Buyers returned to the market this week following a three-week absence during the thick of the first quarter earnings season. The S&P 500, the Dow, and the Nasdaq finished with sizable weekly gains, adding between 2.3% and 2.7% apiece – enough to put the S&P 500 and the Dow back into positive territory for the year (+2.0%, +0.5% YTD). The Nasdaq is now up 7.2% year-to-date.

The stock market got off to a slow start this week as investors digested President Trump’s decision to pull the U.S. out of the Iran nuclear agreement and restore the “highest level of economic sanctions” against Iran. The president was scolded by European allies, which wanted the U.S. to remain in the agreement, while Iran’s response was more violent with lawmakers burning the American flag in parliament.

Tensions in Middle East were further escalated later in the week when Israel struck nearly all of Iran’s military infrastructure in Syria in response to an Iranian missile attack on Israeli-held territory.

Outside of a brief pause, stocks had a mostly muted reaction to the headlines, but crude oil futures took off, with WTI crude establishing a new three-and-a-half year high ($71.26/bbl), as the restoration of U.S. sanctions on Iran – which is OPEC’s third-largest oil exporter – and the looming threat of conflict within the oil-rich region prompted investors to bet on a disruption to crude supply on the global market.

The S&P’s energy sector benefited from the rise in oil prices, adding 3.8% this week, but the industrials, technology, and financials sectors finished with similar weekly gains, adding between 3.4% and 3.6%. In total, nine sectors finished the week in the green, while two – consumer staples (-0.5%) and utilities (-2.3%) – finished in the red.

Stocks started taking off on Wednesday and carried that momentum into Thursday’s session; the S&P 500 added 1.9% in those two days alone, catapulting above its 50-day moving average to a nearly two-month high. Technology shares rallied over that two-day stretch, reminiscing last year’s tech-charged surge, with Apple (AAPL) extending its streak of record closes to five in a row on Thursday (the streak was then broken with a small loss on Friday).

Investors received some important inflation data on Thursday – namely, the Consumer Price Index for April – which helped further fuel the bullish bias, coming in slightly below estimates (+0.2% actual vs +0.3% consensus), and thereby tempering concerns that the Fed might have to be more aggressive in its path to normalization.

Overseas, the Bank of England voted 7-2 in favor of keeping its official bank rate and its asset purchase program unchanged on Thursday, but BoE Governor Mike Carney added that interest rates will likely go up by the end of the year. Separately, President Trump announced that his summit with North Korean Leader Kim Jong Un will be held on June 12 in Singapore, a positive stride in the quest for global peace.

The stock market ended the week with a flat performance on Friday. Volatility picked up temporarily in the afternoon when President Trump released a blueprint for lowering drug prices, but order was restored after it became clear that the blueprint still lacked many specific details.

(Excerpts from Briefing.com)

Friday Update: Wall Street Locks In Big Weekly Gains

Equities ticked higher on Friday, locking in big gains for the week, as a positive performance from the health care sector narrowly outweighed a modest pullback from the information technology group. The S&P 500 and the Dow added 0.2% and 0.4%, respectively, while the tech-heavy Nasdaq underperformed, closing a tick below its flat line. All three indices finished with weekly gains of more than 2.0%.

The market drifted flat to slightly higher for the bulk of Friday’s session, but volatility picked up briefly in the afternoon when President Trump unveiled a blueprint for lowering drug prices. The president plans to increase competition within the drug space and to change rules that have allowed some drugmakers to game the system. The blueprint lacked many details, however, prompting a sigh of relief from investors, who were worried about the possibility of imminent regulation. Health-related names rallied into the close, leaving the S&P 500’s health care sector with a gain of 1.5%.

Telecom services was the only group to outperform health care on Friday, largely thanks to Verizon (VZ), which rallied after JPMorgan upgraded shares to ‘Overweight’ from ‘Neutral’; the telecom services group finished with a gain of 2.1%, while Verizon shares ended higher by 3.0%.

The only other sectors to finish in the green were industrials, consumer discretionary, and utilities, but their gains were modest at 0.2% apiece. On the downside, six sectors finished in the red, but no group lost more than 0.5%. The technology group was among the worst performers, closing lower by 0.3%, which posed a problem for the broader market given the group’s huge influence; technology is the top-weighted S&P 500 sector, representing around a quarter of the broader market alone.

Shares of chipmaker NVIDIA (NVDA) declined 2.2%, retreating from an all-time high, amid a “sell the news” response to the company’s first quarter results, which came in better-than-expected. Separately, Apple (AAPL) shares broke their nine-session winning streak, slipping 0.4%, and shares of Symantec (SYMC) plunged 33.1% after the company announced that it has relayed concerns from an ex-employee to the SEC.

Outside of equities, U.S. Treasuries finished Friday on a flattish note, with the benchmark 10-yr yield holding steady at 2.97%. Meanwhile, WTI crude futures declined 0.9% to $70.70 per barrel, slipping from a three-and-a-half year high, and the U.S. Dollar Index dropped for the third day in a row, slipping 0.2% to 92.41.

Reviewing Friday’s economic data, which was limited to April Import/Export Prices and the preliminary reading of the University of Michigan Consumer Sentiment Index for May:

Investors will not receive any economic data on Monday.

Market Internals – Friday 11 May

Dollar: Rally On Hold

The U.S. Dollar Index was down 0.2% at 92.55, looking to avoid its first weekly decline in a month. The greenback extended its recent rally during the first half of the week, but some selling pressure has come through over the past two days. A weaker than expected CPI report and continued flattening of the Treasury yield curve have contributed to dollar’s backtracking, but the Index remains above its 200-day moving average (91.95), and well above its April low (89.23). Friday’s downtick in the Dollar Index has masked the dollar’s strong showing against emerging market currencies. On a side note, the Argentine peso (23.10) is on track to surrender 5.8% for the week after being down as much as 9.8% at today’s low (23.96). The peso has given up more than 12.0% over the past two weeks, as the country’s monetary and fiscal authorities struggle to prop up the currency.

Bonds: Week Ends in Subdued Fashion

U.S. Treasuries ended the week on a mostly flat note. The Treasury complex spent the Friday session inside a very narrow range, but the bias from the earlier portion of the week remained in place, as the long bond outperformed into the close, settling above its flat line. Intraday weakness in the 2-yr note drove the 2-yr yield to a session high of 2.55% before some afternoon buying lifted 2s into the green. The trading week saw the 2s30s spread compress four basis points to a new cycle low of 58 bps while the 2s10s spread ended the week unchanged at 44 bps after tightening to 42 bps on Thursday.

The yield curve flattened for a third consecutive week with the 5-year maturity rising against the 10-year while the 30-year yield dropped 1 basis point. The spread between the 5s10s tightened to 13bps from 16bps the previous week. The 10s30s tightened to 14bps from 18bps the previous week. 

 Commodities 

Baker Hughes reported that the active number of oil rigs in the U.S. rose for a sixth week in a row, climbing by 13 to 1045. Crude oil futures pulled back from a three-and-a-half year high, while natural gas futures also settled in the red. Outside of energy, metals and agriculture finished mostly lower, but copper futures did settle flat.

The Bloomberg Commodity Index closed at 90.04, higher than 89.67 the previous week in spite of falling from a more than three-month high on Friday, dropping 0.6% to 90.04.

Crude: WTI closes above $71, Brent is resisted at $77.90  

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.2 million barrels from the previous week. At 433.8 million barrels, U.S. crude oil inventories are in the lower half of the average range for this time of year. Total motor gasoline inventories decreased by 2.2 million barrels last week, and are in the upper half of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 3.8 million barrels last week and are in the lower half of the average range for this time of year. Propane/propylene inventories increased by 2.3 million barrels last week, and are in the lower half of the average range. Total commercial petroleum inventories decreased by 1.5 million barrels last week.

Natural gas inventory showed a build of 89 bcf vs a build of 62 bcf in the prior week : Working gas in storage was 1,432 Bcf as of Friday, May 4, 2018, according to EIA estimates. This represents a net increase of 89 Bcf from the previous week. Stocks were 863 Bcf less than last year at this time and 520 Bcf below the five-year average of 1,952 Bcf. At 1,432 Bcf, total working gas is within the five-year historical range.

Baker Hughes total U.S. rig count increased by 13 to 1045 following last week’s increase of 11.

Metals: Gold bounces, Silver and Copper continue to strengthen

Agriculture: Corn, Wheat correct, Soy continues to weaken

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THE FORTNIGHT AHEAD

As I will be away next weekend, I am covering the next two weeks in this update. Thus, don’t expect an update next weekend.

The twentieth week of 2018 (wk20 – 14 to 18 May):

The twenty-first week of 2018 (wk21 – 21 to 25 May):

Key Economic Dates

Week 20

Next week the US will publish retail trade, industrial production, building permits and housing starts. Elsewhere, important releases include: UK wages and unemployment rate; Germany GDP growth; Japan GDP growth and inflation; China retail trade, industrial production and fixed asset investment; and Australia employment.

Mon 14 May

Tue 15 May

Wed 16 May

Thu 17 May

Fri 18 May

Week 21

The following week the US will publish its FOMC minutes, home sales, consumer sentiment and durable goods orders. Elsewhere, important releases include: OPEC meetings, ECB’s Monetary Policy Meeting, UK’s CPI, PPI and RPI, Flash manufacturing and services PMIs from the Eurozone, France and Germany.

Mon 21 May

Tue 22 May

Wed 23 May

Thu 24 May

Fri 25 May

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SUMMARY

The benchmarks have all turned positive YTD with the DOW and S&P swinging upward and away from their respective 200DSMAs this past week. It can be argued that the benchmarks have broken to higher-highs but I wouldn’t be too quick to assume that May is done and dusted yet. The most statistically volatile part of May is coming up these two weeks with Week20 expected to swing up and down and Week21 tending to be the month’s most bearish week.

I’m hedged and have tightened my stops given that I will be away and not likely to have regular access to my trading station. The tightening yield curve with the 10-year hovering just below 3% are going to be keenly watched if May presents a severe correction in its last two weeks.

Much to be nervous about but silly to deny if the break to higher highs happen.

Happy Hunting! See you in two weeks!

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And receive a FREE set of
Candlestick & Breakout Patterns Quick Reference Cards
When You Book Your Tickets!

Date: 26th May 2018, Saturday

Time: 9.30am to 5.30pm (registration starts at 9am)

Venue: 

  • 51 Cuppage Road (Old Starhub Building)
  • ACC EduHub 
  • Level 3, Vibrant Room 3 (#03-03)
  • Singapore 229469

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Weekly Market Update – 07 May 2018 BMO

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WEEK IN REVIEW – 30 April to 4 May 2018: Mixed Week Ends On A Positive Note

Equity indices finished the week mixed, with the S&P 500 and the Dow losing 0.2% apiece and the tech-heavy Nasdaq adding 1.3%. Investors digested the latest policy directive from the Fed, the Employment Situation report for April, and another big batch of corporate earnings — including Apple’s (AAPL) quarterly report.

The stock market kicked off the week on a lower note Monday, with telecoms leading the retreat after Sprint (S) and T-Mobile US (TMUS) agreed to an all-stock merger over the weekend. The deal, which capped four years of on-again, off-again talks, is aimed at creating a larger carrier to better compete with wireless giants AT&T (T) and Verizon (VZ).

Wall Street bounced back a bit on Tuesday, led by technology shares, which rallied ahead of Apple’s quarterly earnings release. Apple’s results crossed the wires on Tuesday evening, showing a better-than-expected bottom line. In addition, the tech giant raised its profit guidance for the current quarter, increased its share repurchase program by $100 billion, and raised its dividend by 16%.

Apple shares rallied more than 4.0% on Wednesday in reaction to the upbeat results/guidance, but the broader market struggled — a somewhat concerning signal considering Apple was among the top performers during last year’s rally and considering it’s the largest component in the S&P 500 by market cap.

The Fed’s latest policy directive was released on Wednesday afternoon, but contained few surprises. Fed officials unanimously decided to leave the federal funds target range unchanged at 1.50% to 1.75%, as expected. In addition, officials laid the groundwork for a rate hike at the June meeting and left the door open for another one to two hikes before the end of the year.

Equity indices shot lower at the start of Thursday’s session, with the S&P 500 busting through its 200-day moving average, but eventually rebounded to finish little changed. Tesla(TSLA) received a lot of attention in the media on Thursday after its CEO, Elon Musk, unconventionally dismissed analysts’ questions in the company’s earnings call, calling them “boring.”

The Employment Situation report for April crossed the wires on Friday morning, showing a lower-than-expected increase in nonfarm payrolls (164K actual vs 190K consensus), an in-line reading for average hourly earnings (+0.2% actual/Briefing.com consensus), and a lower-than-expected unemployment rate (3.9% actual vs 4.0% consensus).

The key takeaway from the report is that there weren’t a lot of big surprises in it, which effectively means the Fed is apt to stay on course for at least two more rate hikes this year.

Apple reemerged in the headlines on Friday after Warren Buffet revealed his company, Berkshire Hathaway (BRK.B), bought an additional 75 million shares of Apple in the first quarter. Apple jumped 3.9% in reaction, leading a broad-based rally that made a significant dent in the S&P 500’s weekly decline. The tech group was the top-performing sector on Friday, extending its weekly gain to 3.2%.

The technology sector closed at the top of the sector standings by a decent margin, while health care (-3.0%), telecom services (-4.6%), and consumer staples (-2.0%) finished at the back of the pack. In total, seven S&P 500 sectors settled the week in negative territory, while four groups settled in the green.

(Excerpts from Briefing.com)

Friday Update: S&P Nearly Recoups Weekly Decline In Friday Rally

U.S. equities rallied on Friday following the publication of the monthly jobs report, with technology names leading the charge — including Apple (AAPL), which rallied 3.9% after Warren Buffet revealed his company, Berkshire Hathaway (BRK.B), bought an additional 75 million shares of Apple in the first quarter. The Russell 2000 jumped 1.2%, the S&P 500 advanced 1.3%, the Dow climbed 1.4%, and the Nasdaq rose 1.7%.

Equity indices opened the session modestly lower, but things turned around quickly after the S&P 500 found support at its 200-day moving average. Stocks climbed steadily into the late afternoon, finishing near their best marks of the day. Friday’s gains brought the S&P 500 and the Dow within 0.2% of their flat lines for the week and left the Nasdaq with a weekly gain of 1.3%.

The Employment Situation report for April was released on Friday morning, but didn’t contain many surprises, reinforcing the notion that the Fed is on course for at least two more rate hikes this year. The report showed a lower-than-expected increase in nonfarm payrolls (164K actual vs 190K consensus), an in-line reading for average hourly earnings (+0.2% actual), and a lower-than-expected unemployment rate (3.9% actual vs 4.0% consensus).

Gains were broad-based on Friday, with all 11 S&P sectors settling in the green. The top-weighted technology sector (+2.0%) closed at the top of the day’s leaderboard, but seven groups in total finished with gains of at least 1.0%. The energy and utilities sectors finished at the back of the pack, but still added 0.4%-0.5% apiece.

Several well-known consumer names rallied after reporting better-than-expected quarterly earnings and revenues, including Pandora (P), GoPro (GPRO), and Shake Shack (SHAK), which spiked between 9.9% and 19.8%, and CBS (CBS), which climbed 9.1%. However, V.F. Corp (VFC) — which owns brands like The North Face, Lee, Wrangler, JanSport, and Dickies — declined 2.8% despite also beating top and bottom line estimates.

U.S. Treasuries saw some intraday movement on Friday, but ended mostly flat, with the yield on the benchmark 10-yr Treasury note closing unchanged at 2.94%. Meanwhile, WTI crude futures jumped 1.9% to $69.72/bbl, their highest close since November 2014, and the U.S. Dollar Index climbed 0.2% to 92.45 – a new 2018 high.

In geopolitics, two days of trade negotiations between the U.S. and China ended without a deal, as expected, but the two sides did agree to keep talking.

Market Internals – Friday 04 May

Dollar: Dollar Index Logs Third Consecutive Weekly Gain

The U.S. Dollar Index was up 0.2% at 92.57, hovering in the middle of Friday’s trading range. The greenback briefly overtook yesterday’s session high in immediate response to the April Employment Situation report (actual 164K; consensus 190K), which underwhelmed on all fronts. The greenback retraced its post-data rally in midday action, returning to levels from the early morning. The Index will record its third consecutive weekly gain, having climbed 3.1% during that stretch.

Bonds: Week Ends on Quiet Note

U.S. Treasuries saw some intraday movement on Friday, but ended mostly flat. The Treasury market started the day with modest gains that were briefly extended after the release of a weaker than expected Employment Situation report for April (actual 164K; Briefing.com consensus 190K). However, the early rally reversed just 25 minutes after the cash open. Treasuries dipped into negative territory in midday action, but reclaimed those slim losses ahead of the close.

The yield curve flattened for a second week with the 2-year maturity rising against the belly of the curve while the 30-year yield dropped 1 basis point. The spread between the 5s10s remained at 16bps from 16bps for the third time. The 10s30s widened slightly to 18bps from 17bps the previous week. 

 Commodities 

The Bloomberg Commodity Index closed at 89.67, higher than 89.40 the previous week.

Crude: WTI closes above $69, Brent is resisted at $75.  

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 6.2 mln barrels from the previous week. At 436.0 mln barrels, U.S. crude oil inventories are in the lower half of the average range for this time of year. Total motor gasoline inventories increased by 1.2 mln barrels last week, and are in the upper half of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 3.9 mln barrels last week and are in the lower half of the average range for this time of year. Propane/propylene inventories increased by 0.7 mln barrels last week, and are in the lower half of the average range. Total commercial petroleum inventories increased by 5.4 mln barrels last week.

Natural Gas inventory showed a build of 62 bcf vs a draw of 18 bcf in the prior week- nat gas prices fall to a new LoD : Working gas in storage was 1,343 Bcf as of Friday, April 27, 2018, according to EIA estimates. This represents a net increase of 62 Bcf from the previous week. Stocks were 903 Bcf less than last year at this time and 534 Bcf below the five-year average of 1,877 Bcf. At 1,343 Bcf, total working gas is within the five-year historical range

Baker Hughes total U.S. rig count increased by 11 to 1032 following last week’s increase of 8.

Metals: Gold continues seasonal decline

Agriculture: Corn, Wheat gain, Soy drops

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THE WEEK AHEAD

The nineteenth week of 2018 (wk19) is going to rock and roll quite a bit:

Key Economic Dates

This coming week, markets will focus on US inflation rate, Michigan consumer sentiment, JOLTs job openings, and producer and foreign trade prices. Elsewhere, the BoE will decide on monetary policy. Other important releases include: UK industrial and construction output and trade balance; China inflation, producer prices and external trade; and Australia business and consumer morale.

Mon 07 May

Tue 08 May

Wed 09 May

Thu 10 May

Fri 11 May

Earnings Season

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SUMMARY

A rock and roll week ahead, DOW and S&P flirting with the 200DSMA, more divergence between the benchmarks, more flattening on the yield curve, the dollar testing a familiar resistance at 92.50 and oil about to break $70 per barrel … The markets feel like they’re really on edge this May. The anticipation of something about to happen is as stifling and volatile as the weather these days. 

Regardless of the seemingly dovish nature of the latest economic numbers, the market seems to know that something else is brewing below the surface. It is making me nervous … or is it a case of paranoia? Whatever it is, I never deny my gut-feel. I am playing it extremely safe this week.

Happy Hunting!

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We’re having one more Introductory Session to the Pattern Trader™ Tutorial June 2018 Batch on Wednesday, May 9th.

If you’re looking to make a huge difference in your financial life, consider attending the Pattern Trader™ Tutorial Introductory Session first.

If you want to know more about the Tutorial, read here: The Pattern Trader™ Tutorial 2018

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Click here now to make a huge difference in your life:
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The schedule for the June batch is here:
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We Are Today, A Result Of Spending Yesterday

On 1st May 2012, I made a series of postings as the economy grew from having too much cheap money. It started with an innocent query on why thoughtless, lavish spending encourages unhealthy inflation instead of helping to stimulate the economy.

People were rushing madly into property launches buying more homes than they could live in, buying second and even third cars and living the life of dreams … even though they couldn’t afford it (read: debt).

Here are the links to all three original postings;

Inflation on the Little Red Dot had grown from less-than-nothing in 2009 to top out just below 6% by 2011. While fears of higher inflation or even hyper-inflation started making its rounds, I wrote about the similarities between Singapore in that current situation being akin to South Korea in the late ’60s/early ’70s, Taiwan in their ’80s heyday, Japan in the late ’80s and Thailand during the mid ’90s – they all grew so quickly and astronomically, only to fall dramatically into Deflation/Recession.

In hindsight, I was right. The fear of inflation/hyper-inflation was misguided. What I feared was scarier and soon realised.

Singapore fell into Negative Inflation (Deflation) for two years between November 2014 to November 2016. Growth since 2012 has been erratic, frequently falling into negative (q/q) contractions every three to five quarters (upside revisions were made regularly to eradicate those negative quarters).

The ramification of such an economic situation would bring about some long-term pain and keep growth muted for longer. Prices would continue to stay high and hurt the middle to lower income earners. They would in turn, borrow more or spend money they didn’t have.

And they did.

By 2014, it was clear that interest rates would rise. I wrote that the rising rates would magnify the debt that these free-spending people had accumulated. This nightmare would come back to haunt them; they would get stuck with the cars they couldn’t afford, mortgages that would likely be defaulted or fire-sold and have debts that they couldn’t clear with 20 months of salary.

We were in an economy flooded with foreign talent seeking to find greener pastures here. All they found was expensive and unaffordable grass that looked good on the surface but was a struggle to upkeep because the cost was too high. They packed up and departed. The ones that stayed behind were the upper income earners who could afford the lofty costs, who in turn kept prices high.

Since then, Singapore has earned the title of the most expensive country in the world to live in, winning that ‘accolade’ for five straight years while our growth remained muted.

Through the six years since I posted those three comments, I have taken a lot of flack from people who accused me of being a party-pooper, a wet blanket and an envious soul who couldn’t live the life of dreams.

For the last one year, I have been busy counselling/advising people who are in financial dire straits, facing bankruptcy and even struggling with psychological trauma as a result of the circumstances from six years ago.

This is one vindication I cannot be happy about. This is not something I would gloat about by being right.

What scares me more is that I have written about the next downturn possibly being one that stretches out over a long period of stagnation in what I call a “slow bleed”. Such slow bleeds widen the rich-poor gulf and makes life extremely difficult to get by on a meagre salary. The precursors of such an economy are a higher monetary policy situation, fewer job opportunities from massive redundancies, record high costs against a low or negative inflationary economy and a draw-down on spending/consumer consumption – all of which are happening right now.

The worst thing from hereon in is a bail-out to help us continue living in denial.

And it will happen.

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Weekly Market Update – 30 April 2018 BMO

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APRIL 2018 IN REVIEW

April is historically the most bullish month of the year. However, with one more session left to go, April of 2018 is looking anything but.

The DOW and the S&P500 are still holding above their critical supports of 23,500 and 2,580 respectively while still making lower highs since January this year. It can be argued that the benchmarks are still in a confirmed downtrend.

Now comes May – famous for the most vicious sell-off of any month.

Before barely closing out March above the 2017 December Low, Q1 of 2018 was already warning us about trouble ahead. Given that the second year of the Presidential term is usually the most bearish of the four-year term, the divergence between the January Barometer and the December Low made it increasingly clear that the year would turn out to be troublesome … and it has been rather troublesome for the bulls year to date. To add more Self-Fulfilling Prophecies to that mix, the lack of a convincing sell-off in May last year and a rather dubious last-minute Santa Claus Rally has not given the bulls any confidence that this market can or should go higher.

April’s macros started revealing chinks in the bulls’ armour as the various economic numbers faltered, stalled or contracted. The yield curve flattened to is flattest since 2007 in the last week of April, sending more doubt and confusion into the risk markets.

While the economy is still buoyant and not showing serious signs of early recession, albeit with weaker numbers, one cannot discount the possibility of a market correction so severe that it will drag the economy down instead of the other way round. But for that to happen, the market will need a major catalyst, for which the immediate horizon is not showing … yet.

On the lighter side of analyses, how about this for a leading indicator …

WEEK IN REVIEW – 23 to 27 April 2018: Little Changed Following Busy Week

The S&P 500 was up and down this week, but ended little changed, closing a tick below its flat line. The Nasdaq Composite and the Dow Jones Industrial Average, meanwhile, finished the week with losses of 0.4% and 0.6%, respectively, and the small-cap Russell 2000 lost 0.5%. Earnings were the focal point, but rising Treasury yields, policy decisions from the European Central Bank and the Bank of Japan, and a historic meeting between the leaders of North and South Korea also received some attention.

This week was the busiest week of the first quarter earnings season, with more than a third of S&P 500 companies reporting their results – which largely came in better than expected. However, the market’s reaction didn’t always correlate with the upbeat headlines.

For instance, in the industrial sector, 3M (MMM), Caterpillar (CAT), Lockheed Martin (LMT), and United Tech (UTX) all dropped on Tuesday after reporting their first quarter results, which, headline-wise, came in above-consensus. Caterpillar initially shot higher, but reversed sharply, taking the broader market with it, after saying in its post-earnings conference call that margins in the first quarter will be the “high water mark” for the year. The industrial sector finished the week at the bottom of the sector standings, losing 3.2%.

Conversely, the consumer discretionary sector finished with a solid gain of 1.1%, boosted by a blowout quarter from Amazon (AMZN) — which easily topped both earnings and revenue estimates for the first quarter. Chipotle Mexican Grill (CMG) also rallied on its better-than-expected results, surging nearly 25% on Thursday to close at its highest level in nearly a year.

A number of technology heavyweights reported their first quarter earnings this week, including Alphabet (GOOG), Facebook (FB), Microsoft (MSFT), and Intel (INTC). Facebook soared after handily beating consensus estimates, Microsoft climbed after also beating on the top and bottom lines, Intel slid despite an upbeat report, and Alphabet tumbled after its weaker-than-expected operating margins overshadowed its much better-than-expected earnings and revenues. The top-weighted technology sector finished the week lower by 0.6%.

Outside of earnings, investors kept a close eye on Treasury yields, which touched new multi-year highs on Wednesday before slipping in the final two sessions. The benchmark 10-yr yield crossed the psychologically important 3.0% mark for the first time in over four years, going as high as 3.03%, before settling the week at 2.96%.

The preliminary reading of first quarter GDP crossed the wires on Friday, showing an annualized increase of 2.3% – which was better than the consensus of +2.1%, but a deceleration from the fourth quarter growth rate of 2.9%. The key takeaway from the report is that consumer spending was weak in the first quarter, increasing just 1.1% after increasing 4.0% in the fourth quarter. Real final sales, which exclude the change in inventories and are often viewed as the better gauge of growth, were up only 1.9% versus the prior ten quarter average of 2.2%.

Across the pond, the European Central Bank released its latest policy directive on Thursday morning, which – as expected – left interest rates unchanged and confirmed that net asset purchases will remain at the current monthly pace of EUR30 billion until the end of September 2018, or beyond, if necessary. The euro declined 0.5% against the U.S. dollar to 1.2105 – its lowest level since early January – following the release and a dovish-sounding press conference from ECB President Mario Draghi.

In Asia, the Bank of Japan also left interest rates unchanged, as expected, but removed from its policy statement a reference to reaching its 2.0% inflation target in fiscal year 2019/2020. However, the biggest story of the week in Asia came from the Korean Peninsula, where the leaders of North and South Korea came together for a historic summit. The two leaders signed a pact that seeks permanent and solid peace and stated an aim to work towards a complete denuclearization of the Korean Peninsula.

(Excerpts from Briefing.com)

Friday Update: Earnings Fail to Nudge the Market Higher

The major averages ended Friday little changed despite strong earnings reports from Amazon (AMZN), Microsoft (MSFT), and Intel (INTC) – three high-profile names that helped pace last year’s rally. The S&P 500 finished a tick higher (+0.1%), the Nasdaq settled flat, and the Dow closed a tick lower (-0.1%).

Amazon shares soared at the opening bell, adding nearly 8.0%, after the internet retail giant reported blowout first quarter results – easily beating both top and bottom line estimates – and raised its profit guidance for the second quarter. However, the bullish sentiment soon dampened; AMZN shares quickly slashed their gains in half, eventually closing higher by 3.6%.

Microsoft and Intel shares went through a similar experience after both companies reported better-than-expected quarterly results; Microsoft trimmed its opening gain of 4.0% to 1.7% by the closing bell, while Intel gave back all of its opening gain of 5.0% and then some, finishing lower by 0.6%.

The dialed back buying of these once invincible-looking stocks helped strengthen the narrative that earnings are at, or near, a peak for this growth cycle.

In other earnings news, energy heavyweight Chevron (CVX) beat earnings estimates for the first quarter, but its peer Exxon Mobil (XOM) missed the mark; Chevron shares ended higher by 1.9%, while Exxon shares settled lower by 3.8%. Meanwhile, shares of Starbucks (SBUX) lost 1.7% after the coffee giant’s earnings came in as expected.

Seven S&P 500 sectors finished Friday in positive territory, while four groups finished in the red. Energy (-1.2%) was by far the weakest group, suffering from Exxon’s disappointing earnings, while telecom services (+1.8%) led to the upside following a Reuters report that a merger deal between Sprint (S) and T-Mobile (TMUS) could be struck in the next three days.

U.S. Treasuries rallied for the second day in a row on Friday, sending the benchmark 10-yr yield three basis points lower to 2.96%.

In geopolitics, the leaders of North and South Korea held historic talks on Friday, agreeing to sign a pact that seeks permanent and solid peace and stating an aim to work towards a complete denuclearization of the Korean Peninsula. Separately, German Chancellor Angela Merkel met with U.S. President Donald Trump at the White House to discuss the Iran nuclear deal, trade, and other issues.

The Bank of Japan kept interest rates unchanged, as expected, but removed from its policy statement a reference to reaching its 2.0% inflation target in fiscal year 2019/2020.

Reviewing Friday’s economic data, which most notably included the preliminary reading of first quarter GDP; investors also received the first quarter Employment Cost Index and the final reading of the University of Michigan Consumer Sentiment Index for April:

Market Internals

Dollar: Dollar Index Eyes 200-Day Average

The U.S. Dollar Index was up 0.2% at 91.70, seeking its tenth gain in the past twelve days on Friday. The Index notched a session high immediately after the release of a slightly better than expected advance GDP report for the first quarter (actual 2.3%; consensus 2.1%). The post-data rally produced a session high (91.986) just shy of the descending 200-day moving average (91.988), which hasn’t been breached in a year. The ensuing pullback returned the Index to yesterday’s session high, narrowing this week’s gain to 1.5%.

Bonds: Long Bond Leads Treasuries Higher; Curve Flattens

U.S. Treasuries ended the week on a higher note with the long bond pacing Friday’s advance. Treasury futures climbed in overnight action, leading to a higher open. Shorter tenors briefly surrendered their early gains in response to a slightly better than expected advance reading of first quarter GDP (actual 2.3%; consensus 2.1%), but the long end was not impressed. The report showed that personal consumption expenditures (+1.1%) increased at the slowest rate since the second quarter of 2013 with the entirety of that increase driven by services spending. Longer tenors remained ahead until the close, which pressured the yield curve. The 2s10s spread narrowed two basis points to 48 bps while the 2s30s spread tightened four basis points to 65 bps. On a side note, the 10s30s spread tightened to a cycle low of 17 bps.

It is worth noting that first quarter GDP reports from France (0.3% quarter-over-quarter; 0.7% prior) and the UK (0.1% quarter-over-quarter; 0.4% prior) also showed decelerating growth, turning the “synchronized global growth” narrative that was alive at the beginning of the year into a less-marketable “synchronized global growth slowdown” story.

The entire yield curve FLATTENED over the week with the 5-year maturity rising quicker against the longer maturities while the 30-year yield dropped 1 basis point. The spread between the 5s10s remained at 16bps from 16bps the previous week. The 10s30s tightened to 17bps from 20bps the previous week. 

Commentary:
The historical significance of the 2-year yield at 2.5% is much more than the 10-year’s 3%.

I mentioned this is my Trader’s Alumni Forum earlier this week. Here’s a key point that most yield watchers are missing; The 2 year cracked 2.5% (intraday) during the week and closed at 2.48%. The last time the 2 year gave a 2.5% return was on its way down in August 2008 when the market capitulated. But when did it break 2.5% going up?

That happened in May 2004. That was after two to three months in a downtrend. As the 2 year kept its 2.5% yield, the market began the rally that went all the way up to August of 2007. In that time, the 2 year yield kept rising till it inverted against the 5 year yield in December 2005. By the end of the year, the 2 year yield had also inverted against the 10 year.

Because the 30-year was discontinued on February 18, 2002 and reintroduced on February 9, 2006, we didn’t have a “complete” curve. But when the 30 year returns in February of 2006, it yielded 4.51% against the 2 year’s 4.66%.

While some argued that the curve had inverted, others maintained that is was flat because the spread between the 5, 10 and 30 was practically on par – the accepted old school “norm” for determining an inversion should be more than 10bps between all benchmarks – something that today’s market doesn’t observe anymore.

The curve continued this flat-to-inverted trend all the way into January of 2007.

Thus, watch the 2 year. That 2.5% is flying under the radar but it is a key indication for a possible inversion in about 6 months to a year.

Commodities 

The Bloomberg Commodity Index closed at 89.40, lower than 89.85 the previous week.

Crude: Touches $69 for the first time in more than four years

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.2 mln barrels from the previous week. At 429.7 mln barrels, U.S. crude oil inventories are in the lower half of the average range for this time of year. Total motor gasoline inventories increased by 0.8 mln barrels last week, and are in the upper half of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 2.6 mln barrels last week and are in the lower half of the average range for this time of year. Propane/propylene inventories decreased by 0.2 mln barrels last week, and are in the lower half of the average range. Total commercial petroleum inventories increased by 1.4 mln barrels last week.

Baker Hughes total U.S. rig count increased by 8 to 1021 following last week’s increase of 5.

Metals: Gold continues seasonal decline

Agriculture: Grains gain

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THE MONTH AHEAD

May ends the “Best Six Months” on the DOW and S&P and begins the six volatile/worst months on the DOW and S&P till October. May has the ominous reputation for having the worst sell-off/correction of any month in the calendar year.

May 2018 has twenty-two (22) trading sessions and one public holiday on Monday 28th May – Memorial Day – markets will be closed. May starts well but immediately becomes bearish within the first week. The rest of the month is more bearish than bullish.

May Trivia

THE WEEK AHEAD

The eighteenth week of 2018 (wk18) tends to swing unpredictably. Over the last 21 years, the week starts out well, becomes very bullish on Tuesday then moderately bullish on Wednesday but turns very bearish on Thursday and Friday. The reliability average over the last 15, 10 and 5 years are not as high as 21 years but is directionally similar with a few slight divergences.

Key Economic Dates

The most important events for the coming week are the Fed Monetary Policy Decision and the US jobs report. Other key economic data for the US include: trade balance, ISM PMIs, PCE price index, personal income and spending and factory orders. Elsewhere: UK Markit PMIs and monetary indicators; Eurozone Q1 GDP growth, inflation and unemployment; Japan and China PMIs; and Australia interest rate decision.

Sun 29 April

Mon 30 April

Tue 01 May

Wed 02 May

Thu 03 May

Fri 04 May

Earnings Season

Next week marks the first of three very heavy weeks of earnings reports – roughly 1/3 of the S&P 500 and 12 of the 30 DOW components will report quarterly results.

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RISING YIELDS & THE LOOMING 200DSMA

The questions poured in during the week as to why rising yields would send fear through the market as the DOW fell as much as 500 points in intraday trading.

We know that valuations are through the roof right now in spite of the correction since February. Such valuations always make investors twitchy for a reason to run.

Corporate debt is also at record high thanks to a decade of cheap money. Any hint at higher rates will make borrowers twitchy too. Higher rates would magnify that debt. Plus the Fed has promised at least three more hikes for this year with five more rate meetings to go for 2018.

Thus, at 3% on the 10-year, this would imply that the Fed could be raising its benchmark rate to at least 3% within the year. The 10-year yield has always served as a reliable indication as to where the Fed Funds Rate would go.

Then throw in the mix of a rising inflation rate (target was 2%, currently at 2.4%), underwhelming corporate earnings (coupled with an over-zealous 17% growth expectation), declining Non-Farm Payrolls since October 2017 (barring that odd February spike), rising oil against a strengthening dollar, slowing growth and a host of other not-so-encouraging economic numbers, you get a market that is in doubt and confused as to where the money should be flowing to.

And when the players look at their charts, they see another looming threat to their money …

As of last Friday’s close, the DOW sits just 609 points (2.5%) above its 200DSMA and below its 20DSMA and 50DSMA. The S&P is less than 59 points (2.2%) above that crucial average and also below its 20DSMA and 50DSMA.

It will only take a couple of volatile sessions in the coming week to drop the benchmarks below their critical 200DSMAs for the first time since that one-day anomaly in June 2016.

SUMMARY

May is typically a mixed month for the major indexes but can be quite bearish in midterm years. 2018 is a midterm year. Over the past 67 years, the Dow had 35 Mays that were positive, and 32 that were negative. The S&P500 has seen 39 Mays end in positive territory for the month, and 28 when it declines. The average decline over that period has been around -0.2% while the average gains have been around +0.2%.

However, midterm years have dropped the month of May by as much as 1%. Put into perspective, a 1% loss over a period of a month these days is nothing. But consider that a 1% decline will surely drop the benchmark indices below their respective 200DSMAs and that the 50/200DSMA “Death Cross” is mathematically possible in that scenario, you have a high possibility of a huge sell-off this May.

The coming week will reveal just how tight this situation is. The market will be tested by the FOMC Rate and Policy Statement mid-week and Non-Farm Payrolls at the end of the week. So watch the earnings, the VIX, the yield curve, the market’s internals and everything else in between … looks like a storm is brewing for May 2018.

Happy Hunting!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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PATTERN TRADER™ TUTORIAL (K.L.)

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Weekly Market Update – 23 April 2018 BMO

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WEEK IN REVIEW – 16 to 20 April 2018: HOLDING ON

The U.S. stock market notched its second consecutive weekly advance this week, but big losses on Thursday and Friday left a bad taste in investors’ mouths going into the weekend. The S&P 500 added 0.5% this week, while the Dow Jones Industrial Average and the Nasdaq Composite climbed 0.4% and 0.6%, respectively.

Wall Street kicked off the week on a positive note, breathing a sigh of relief after a U.S.-led strike on Syria over the weekend — which was in response to a suspected chemical attack from the Syrian government on the rebel-held town of Douma – turned out to be less dramatic than many had feared. Russian President Vladimir Putin – who supports Syrian President Bashar al-Assad – condemned the attack, saying additional strikes could invite chaos in global affairs, but made no mention of a military response to this particular incident – leading investors to believe that the dust has settled for now.

The bullish bias carried over into Tuesday’s session, as investors turned their attention to the earnings front. Netflix (NFLX) soared nearly 10% on Tuesday, hitting a new all-time high, after crushing subscriber growth estimates for the first quarter and issuing upbeat guidance for Q2. Goldman Sachs (GS) had a blow-out first quarter, easily beating both earnings and revenue estimates, but its shares struggled to advance on Tuesday, putting the investment bank on a long list of financial names that have failed to rally on upbeat results.

Stocks moved higher once again on Wednesday, but only modestly so, as IBM (IBM) weighed on investor sentiment. Shares of the tech giant tumbled 7.5% in the midweek session after the company’s above-consensus first quarter profits and revenues were overshadowed by its disappointing gross margin rate, the quality of its revenue (more from hardware and less from cloud), and its relatively conservative profit guidance for fiscal year 2018. Meanwhile, energy shares outperformed as crude oil futures returned to their highest level in more than three years.

On Thursday, the market registered its first loss of the week, with consumer staples shares pacing the retreat. Shares of tobacco giant Philip Morris (PM) plunged 15.6% after the company reported a decline in cigarette shipment volume for the first quarter and slower-than-expected growth for its IQOS product – which heats tobacco instead of burning it. Meanwhile, Apple supplier Taiwan Semi (TSM) led a broad tech retreat after its first quarter earnings and revenues came in below estimates; the chipmaker also lowered its guidance for Q2.

Wall Street ended the week with another disappointing performance on Friday. The technology sector showed relative weakness once again, with its top component by market cap – Apple (AAPL) – sliding 4.1% after several analysts raised concerns about the prospect of iPhone sales being weaker than expected. Financials provided some relief though. Financial giant Wells Fargo(WFC) was particularly strong, adding 2.0%, after agreeing to pay $1 billion to settle loan abuse allegations.

In the end, seven S&P sectors finished with weekly gains, while four finished with weekly losses. The energy group (+2.6%) was the top-performing group, as WTI crude futures advanced 1.5% over five sessions, closing Friday at $68.38 per barrel. Conversely, the consumer staples sector (-4.4%) was the worst performer by a large margin, extending its 2018 loss to 11.8%; for comparison, the S&P 500 has slipped 0.1% year to date. In general, growth-sensitive sectors outperformed defensive ones, although the top-weighted technology group (-0.2%) bucked this trend.

The yield curve ultimately steepened this week, but not before the 2s10s spread hit a 10-year low. Fed officials generally don’t appear to be worried about a still low 2s10s spread — which closed at 51 basis points on Friday — leading the market to still believe that there will be at least three rate hikes this year in total.

Friday 20 April Summary: Apple Leads Broad Retreat

Stocks retreated for the second day in a row on Friday, with shares of tech giant Apple (AAPL) falling sharply. The S&P 500 lost 0.9%, the Dow Jones Industrial Average dropped 0.8%, and the tech-heavy Nasdaq Composite declined 1.3%, but all three major averages managed to maintain modest gains for the week.

Friday’s selling was broad-based, with 10 of 11 S&P 500 sectors finishing in the red. The technology (-1.5%) and consumer staples (-1.7%) groups were the worst-performing sectors, while the financial space (+0.1%) finished at the top of the sector standings with a slim gain. Stocks were modestly lower at the opening bell, but selling accelerated after the S&P 500 breached its 50-day moving average (2687). The major averages finished a step above their session lows thanks to a late rally.

Apple led the tech sector lower on Friday, with its shares dropping 4.1%, following cautious commentary from analysts, who warned that iPhone sales could slow in the coming months. These concerns flowed from the weak guidance that Taiwan Semi (TSM) gave on Thursday, which was attributed, in part, to softer smartphone demand. Apple shares did find some support at their 200-day moving average though, closing right on top of the key technical level.

Meanwhile, in the financial sector, shares of Wells Fargo (WFC) had a positive showing, rallying 2.0%, after the big bank agreed to pay $1 billion to settle loan abuse allegations. Wells Fargo’s positive performance helped underpin the financial group, but a steepening of the yield curve was likely the more influential factor; the 2s10s spread ticked up two basis points to 51 basis points — up from 42 basis points on Tuesday. The benchmark 10-yr yield ended four basis points higher at 2.95% — its highest level in more than four years.

On the earnings front, shares of General Electric (GE) jumped 3.9% after the Dow component reported better-than-expected earnings and revenues for the first quarter and reaffirmed its guidance for fiscal year 2018. Shares of fellow industrial giant Honeywell (HON) also climbed following upbeat Q1 results, adding 1.7%.

In politics, the Democratic National Committee filed a lawsuit on Friday against the Russian government, the Trump campaign, and the WikiLeaks organization, alleging that they conspired to tilt the 2016 presidential election in Mr. Donald Trump’s favor. The news had a negligible impact on trading.

Investors didn’t receive any economic data on Friday.

Market Internals – Friday 20 April

DOW and S&P still (barely) negative YTD.

(Excerpts from Briefing.com)

Dollar: Dollar Index Holds April High

The Dollar may come up against some very stiff resistance in the coming week at 90.40 which has been its three-month average resistance level.

The U.S. Dollar Index was up 0.4% at 90.26, for its fourth consecutive advance. The Index, which overcame Monday’s 0.4% drop, has now gained 0.6% since last Friday. On Friday, at its best level of the day, the Index hovered within striking distance of its high from April 6 (90.60). The dollar strength has been broad-based, but the greenback’s performance against the euro and pound stood out.

The euro slipped back below its 50-day moving average (1.2333) after ECB President Mario Draghi acknowledged that the growth cycle in the eurozone may have peaked already. Mr. Draghi’s comments followed this year’s batch of disappointing regional PMI readings, and they increase the likelihood that the ECB will delay discussions regarding tightening for as long as the market allows.

For its part, the British pound registered its fourth consecutive decline after extending to a fresh 18-month high on April 17.

Bonds: 10-Yr Yield Hits Fresh 2018 High

U.S. Treasuries ended the week on a lower note, though the day’s retreat was not as aggressive as the selling that took place on Wednesday and Thursday. However, it was sufficient to lift the 10-yr yield to a fresh 2018 high at 2.953%. Farther out, the long bond finished just beneath yesterday’s session low, pushing up its yield to within eight basis points of the 2018 high (3.221%). Treasuries weren’t the only weak spot on the fixed income side, as investment grade and high yield debt also retreated. The iShares iBoxx Investment Grade Corporate BondETF (LQD) is down 0.4%, trading just above its March low (115.52), while the iShares iBoxx High Yield Corporate Bond ETF (HYG) is nearing its 50-day moving average (85.74).

The entire yield curve STEEPENED imprecisely over the week with the shorter maturities rising slower against the longer maturities. The spread between the 5s10s remained at 15bps from 15bps the previous week as did the 10s30s at 20bps from 20bps the previous week. The 2s10s spread was at its narrowest (since 2007) last week at 45bps – this week it widened to 51bps.

Crude: Brent & WTI break multi-year highs

Not since December 2014 has WTI been at $69.00/barrel but it tested that level on Thursday and fell back by the close of the week. I am expecting WTI to get to $70 before the end of the month before it goes into its seasonal correction in May and June.

Dear Trump, the price of oil is not for you to dictate. We have a market to decide that for the world (which is a little bit larger than the one you live in). 

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.1 million barrels from the previous week. At 427.6 million barrels, U.S. crude oil inventories are in the lower half of the average range for this time of year. Total motor gasoline inventories decreased by 3.0 million barrels last week, but are in the upper half of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 3.1 million barrels last week and are in the lower half of the average range for this time of year. Propane/propylene inventories remained unchanged last week, and are in the lower half of the average range. Total commercial petroleum inventories decreased by 10.6 million barrels last week.

Baker Hughes total U.S. rig count increased by 5 to 1013 following last week’s increase of 5. 

Metals: Gold Falls back

Agriculture: Corn continues weakness, Wheat and Soy Correct

Commodities measured by the Bloomberg Commodity Index closed at 89.85, higher than 89.28 the previous week.

THE WEEK AHEAD

The seventeenth week of 2018 (wk17) tends to be bullish over the 5, 10 and 15 averages. However, over the 21 year average the DOW and S&P tend to be bearish on Tuesday while the rest of the week is bullish. Over all the time averages, the most bullish day of week 17 is Friday

Key Economic Dates

In the coming week, the US will publish the advance estimate of GDP growth for Q1, alongside durable goods orders, existing and new home sales, flash Markit PMIs and the final Michigan consumer sentiment. Elsewhere, the ECB and the BoJ will decide on monetary policy. Other important releases include: UK flash Q1 GDP growth; Eurozone Markit PMIs; Japan unemployment, retail trade, industrial output; and Australia inflation rate.

Mon 23 April

Tue 24 April

Wed 25 April

Thu 26 April

Fri 27 April

Mon 30 April

Earnings Season

Next week marks the first of three very heavy weeks of earnings reports – roughly 1/3 of the S&P 500 and 12 of the 30 DOW components will report quarterly results.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SUMMARY

I am still maintaining my cautiously bullish stance for the coming week in spite of the market falling back on Thursday and Friday of week 16. Watch out for some speed bumps in the form of GDP announcements and PMIs. Earnings from the big hitters should give us a better gauge of what to expect for the rest of the quarter and I am not expecting any huge surprises. Some downside guidance is expected but the overall picture should continue as it started – positive but underwhelming.

Happy Hunting!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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Ten (Trading) Rules I Never Break

As with anything in life, we have rules. We stop at red lights. We do not touch the red “live” wire. We never put our hands in boiling water. We do not leave the baby unattended in the bath.

Rules are meant for our safety. Rules prevent bad things from happening. Rules keep things organized and orderly.

We have rules for trading too but unlike most other rules, we tend to forget them, break them or ignore them when we trade. The fact about trading rules is that if you do not break them, you will find your losses actually getting less. The risk factors are also lowered significantly and your confidence stays untested.

If it is so obvious that trading rules are good for you, why then do people not have rules when they trade or why do they not adhere to them as they are trading?

The answer is a word that most people do not like while others do not even consider … Discipline.

Traders also have a tendency to want to prove to themselves that they are better than they actually are. These traders would like to believe that they have the skill to manage their trades without the need for stifling and restrictive rules. If nothing goes wrong, then it is all fine and dandy. However, when things do go awry (and they often do in this business), they will lack the discipline to do the right thing no matter how skillful they are.

The reason such traders do not feel the need to have rules is simply a matter of Pride. For such traders, having rules is a sign of weakness. Their pride will precede common sense and when something does go wrong, it is that same pride that will keep them from admitting that they have made a mistake. They will then defend that pride by blaming and finding excuses for their misfortune. For their lack of discipline, proud traders will never accept accountability for their losses.

Discipline and Pride … somehow, the two words do not jell well in the same sentence.

It is the humble trader who knows that things can go wrong, that mistakes can happen, that nothing should be taken for granted and that a set of rules will readily keep him safe.

I keep a set of ten simple rules when I trade to keep me disciplined so that my psychology is never tested and my confidence is kept high:

1) I Trade Only When There Is Something To Trade.

This is not the easiest thing to do. Experienced traders will tell you that the most difficult thing in trading is knowing when not to trade. Too often, we look for trades, we find an excuse to want to trade and we jump into trades without fully considering the consequences.

This rule keeps me from doing all that. I trade only because there is a trade to be made because the market is telling me so. If I have to consider my analyses for more than a minute, it simply means that there is no trade yet. If there were a trade to be made, it would be crystal clear.

2) I Never Trade Without R.S.T. (Reason, Strategy and Targets).

I keep a simple guideline about having a reason to trade and they fall into five categories:

  1. Interest Rates (Monetary Policy)
  2. Earnings
  3. Seasons
  4. Cycles (Sector Rotation)
  5. News (Macroeconomics)

If I do not have one of these reasons to take a positional trade, then I really do not have a reason to trade. Interest Rates give me a reason to take a long-term position like an investment. Earnings give me a quarterly reason to hold an equity position for up to three months. Seasons also give me a quarterly reason to hold anything other than equities. Cyclical trades can last between a week to a month or two. News can be a good reason to get a quick profit within a week.

Once you have your reason, you need to strategize that trade in the event that something goes wrong. You will need to have a fix, a hedge or some sort of protection because in this business, things can go very wrong very quickly.

Lastly, I never take the trade without first planning my trading budget, timeframe (duration), price target and stop-loss.

3) I Never Trade Something I Did Not Research Myself.

A common practice among sloth traders is to get a tip from someone else and jump into the trade, hoping for the best. They know little about the trade and definitely have no plan for it. Whether the tip loses or becomes profitable, they will surely not know what to do with it and when to do it.

Researching is a basic part of what good traders do before taking a position. If someone had a tip, I would research that tip thoroughly, have a plan to trade it and have a total understanding of what is about to happen.

Not researching a trade is akin to going on a road trip without first mapping the journey. You are bound to get lost at the first wrong turn.

4) I Never Buy The High

A general reaction to securities on the way up is that if you do not catch it soon, you will miss the ride. The problem with that thinking is that the security has already left you behind. If you do get a position, you will find that you are almost always going to suffer a dip thereafter.

Never buying the high allows me to contemplate my choices, of which there are always three: buy, sell/short or hold/do nothing.

Since the security is at a high, I obviously will not go long on it. I can choose to do nothing or if I am already in a position, I can choose to hold my position. I can also choose to sell what I have for a profit and even consider a possible short position if I do not have anything to sell for a profit (provided the short trade was researched first). Whatever my choice, I will not be buying it.

5) I Never Sell/Short The Low.

Tanking securities generate one of two extreme emotions in a trader – panic or greed. Panic tends to send the price down faster and more irrationally than greed sends the price up. To short an already tanking security is to court unnecessary risk. The security may have already arrived at the bottom where it is likely to consolidate or even bounce as a result of short covering or a short squeeze. To sell (cut loss) in panic at this level would be foolhardy as a bounce could save you some grief.

Of course, due diligence and research needs to be done in order to make a sound decision. Never selling/shorting the low allows me to pick from those three choices again — buy, sell/short or hold/do nothing.

Since the security is at a low, I obviously will not go short on it. I can choose to do nothing or if I am already in a position, I can choose to hold my position. I can also choose to short cover what I have for a profit and even consider a possible long position if I do not have anything to cover for a profit (provided the long trade was researched first). Whatever my choice, I will not be selling it.

But would I buy it? It depends on Rule #6.

6) I Buy On Supports

By using volumes and timing my entries to leverage on seasons and cycles, the lowest risk entry for a long trade is always when the security comes off a significant support level.

Other methods widely used by professionals include MACD, Candlestick Analysis and Breakout Patterns. But one constant remains – the lowest risk entry is when the price breaks out of those patterns as it comes off a significant support level.

Occasionally, the trend breaks down rather than bounces. For this see Rule #7.

7) I Sell/Short On Resistance

If I am looking to short something, I would rather short it at a high where there is a significant resistance to spoil the uptrend. I would also consider a short if a security breaks below a significant support level.

Remember that significant support levels used to be the recent significant resistance levels that are broken to the upside.

If such levels cannot support the security, it is rather common to see the price fall precipitously as it breaks below that support level.

8) I Never Trade In No Man’s Land

When a security is neither at a high near a resistance nor at a low near a support, that security is deemed to be in “No Man’s Land”.

Taking a position in No Man’s Land gives the trader a 50% chance of making or losing. I have been considered a high risk-taker but even a 50-50 chance is too much of a risk for me.

I would rather wait for the security to get up to the resistance again or fall further to the support before I consider my options. Remember rules #6 and #7.

9) I Always Wait For My Setup.

The setup is a familiar pattern that the security regularly performs that prompts me into action. Such patterns tend to repeat themselves thus making entries rather reliable.

One very common setup is the scalping opportunity at the opening hour of the U.S. Market. Certain stocks tend to take a direction in the opening 15 to 20 minutes and promptly reverse into the direction of the market trend. The initial direction is often from profit taking as the previous session could have closed higher. It could also work the other way as traders cover their shorts from the previous day’s drop.

When a security presents such an opening, regular traders of the security will identify an opportunity to make a scalp as the reversal falls into place and all the technical indications look ever so familiar. This is a setup.

All good traders have setups of their own. They will wait patiently for the security to set itself up and if it never happens, they do not trade. However, when it presents itself without any doubt, the trader knows that this is the lowest possible risk trade that he will ever take.

I have various setups for the various securities I trade. Each trading timeframe also comes with its own setup. There have been times in the past when I did not have the patience to wait for my setup. The results were always disappointing. Today, this is still one of my most testing disciplines but I have gotten better at it.

Good habits come from good practice.

10) I Never Break Any Of These Rules.

Now that should go without saying!

Feel free to download this poster and stick it up on the wall where you trade as a visual reminder to stay disciplined to your craft. Take it as my goodwill gift to you so that you may strive to be a mindful trader.

Happy Hunting!!

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This article was featured in the National Best-Selling Book, “Winning Psychology Of Defensive Traders” 

Copyright © Pattern Trader™ by Conrad Alvin Lim. All Rights Reserved 

 

 

 

 

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Pattern Trader Tutorial Introductory Session

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We’re having another Introductory Session to the Pattern Trader™ Tutorial June 2018 Batch on April 26th.

(The schedule for the June batch is here: Pattern Trader™ Tutorial Batch 94 June 2018)

The batch is confirmed to go ahead in June as the minimum take-up has already been achieved. So book that date early, bring a friend/relative and really do yourself a favour by knowing what you really need in order make it in this business.

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If you’re looking to make a huge difference in your financial life, consider attending the Pattern Trader™ Tutorial Introductory Session first.

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Comments Off on Weekly Market Update – 16 April 2018 BMO

Weekly Market Update – 16 April 2018 BMO

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WEEK IN REVIEW – 9 to 13 April 2018: Light Volume Overshadows Gains

Wall Street had a good week in terms of gains, but volume was light, pointing to a lack of conviction among investors — who spent the week digesting a steady stream of headlines. The tech-heavy Nasdaq Composite led the major indices higher, adding 2.8%, while the S&P 500 and the Dow Jones Industrial Average advanced 2.0% and 1.8%, respectively.

The stock market began the week on a positive note following weekend interviews from several White House officials, including Treasury Secretary Steven Mnuchin, that helped to alleviate fears that the U.S. is barreling towards a tit-for-tat trade war with China. Chinese President Xi Jinping helped further improve investor sentiment with a speech at the Boao Forum on Tuesday, saying that he plans to “significantly” cut tariffs on imported automobiles, reduce duties on other imported goods, and improve the intellectual property rights of foreign firms.

Moving to the Middle East, geopolitical tensions were heightened following a suspected chemical attack from the Syrian government on the rebel-held town of Douma that killed at least 40 people over the weekend. The situation escalated even further on Wednesday morning when Russia, which supports Syrian President Bashar al-Assad, warned that it would shoot down any missiles fired at Syria — to which U.S. President Donald Trump replied “get ready Russia, because they will be coming.”

As of this writing, the U.S. has yet to strike the Syrian government, but it could happen at any moment. The attack was first thought to be imminent, but President Trump muddled that belief on Thursday by tweeting that it could happen “very soon or not so soon at all!”

In addition to the situation in Syria, a missile attack aimed at Saudi Arabia by pro-Iranian rebels in Yemen served to further escalate tensions in the region. Saudi air defense forces intercepted one missile over the capital Riyadh on Wednesday, while two others were intercepted over the southern areas of Jazan and Najran.

With all the concerning headlines out of the oil-rich Middle East, traders pushed oil prices substantially higher this week, betting that the tensions will eventually lead to a slowdown in production. West Texas Intermediate crude futures surged 8.4% to $67.26 per barrel, closing Friday at their highest level in more than three years. The S&P 500’s energy sector benefited from the jump in oil prices, finishing at the top of the week’s sector standings by a comfortable margin; the group added 6.0%.

In Washington, Facebook (FB) CEO Mark Zuckerberg testified on Capitol Hill this week, answering questions regarding the company’s Cambridge Analytica data scandal and Russia’s alleged use of Facebook to influence the 2016 U.S. presidential election. Mr. Zuckerberg was grilled for 10 hours by nearly 100 lawmakers, but the market seemed satisfied with his answers. Facebook shares climbed 5.3% over the two days of testimony, eventually finishing the week with a gain of 4.7%.

On Friday, big banks kicked off the first quarter earnings season, with JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) all beating profit estimates on in-line revenues. However, shares of the three lenders, and the broader financial sector, sold off in the wake of the reports. The financial sector settled the week with a gain of 1.0%, which placed it in the middle of the sector standings. The lightly-weighted utilities and real estate groups finished at the back of the pack, losing a little more than 1.0% apiece.

Investors received the minutes from the March FOMC meeting this week, but the report contained few surprises. Some key inflationary data was also released this week – namely the CPI readings for March – but was met with a largely muted response from the market. In short, the consumer prices report showed a firming (though not scary) inflation trend that will keep the Federal Reserve wedded to its tightening bias and its belief that at least two more rate hikes are warranted this year.

The CME FedWatch Tool still anticipates that the next rate hike will occur at the June FOMC meeting with an implied probability of 95.0% (up from 85.2% last week). The market also still believes there will be a total of three rate hikes in 2018, but the chances for a fourth hike increased to 36.8% (from 26.3% last week).

Friday 13 April Summary: Stocks Trim Weekly Gains on Friday

Stocks slipped on Friday, ending a positive week on a disappointing note, as some geopolitical angst prompted investors to take some money off the table ahead of the weekend. The S&P 500 declined 0.3%, the Nasdaq Composite lost 0.5%, and the Dow Jones Industrial Average dropped 0.5% – trimming their gains for the week to 1.8%-2.8%.

The major averages started the session modestly higher following better-than-expected first quarter earnings results from financial giants JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C). However, after a short stint in the green, the financial sector moved lower, bringing the broader market with it. Volatility picked up in the final stretch, with the major averages dropping to new lows before bouncing back, as investors contemplated the likelihood of a U.S.-led strike on Syria over the weekend.

President Trump has promised that the U.S. will be striking the Syrian government, which is accused of carrying out a chemical attack against the rebel-held town of Douma last Saturday, but the president has intentionally made the timing of the attack unclear. Adding to the uncertainty, an attack would likely put the U.S. at odds with Russia, who supports Syrian President Bashar al-Assad and has vowed to shoot down any missiles fired at Syria.

The energy sector (+1.1%) helped keep losses in check on Friday, extending its weekly gain to 6.0%, as oil prices rallied for the fifth day in a row. West Texas Intermediate crude futures jumped 0.3% to $67.26 per barrel – their best level in more than three years – benefiting, once again, from the uncertainty surrounding the oil-rich Middle East. The utilities (+0.7%), consumer staples (+0.5%), and real estate (+0.5%) sectors also advanced, but the seven remaining groups finished in the red.

Unsurprisingly, the financial sector (-1.6%) finished at the bottom of the sector standings following the negative reaction to the big bank earnings. The consumer discretionary space (-0.6%) also underperformed, but no other group lost more than 0.3%. Within the top-weighted technology space (-0.3%), chipmaker Broadcom (AVGO) outperformed, adding 3.1%, following news that the company’s board has authorized the repurchase of up to $12 billion of common stock.

In the bond market, U.S. Treasuries finished Friday mixed, flattening the 2s10s spread to 45 basis points – its lowest level since 2007. The yield on the benchmark 10-yr Treasury note slipped one basis point to 2.82%, while the yield on the 2-yr Treasury note climbed two basis points to 2.37%.

Reviewing Friday’s economic data, which was limited to the preliminary reading of the University of Michigan Consumer Sentiment Index for April and the Job Openings and Labor Turnover Survey for February:

On Monday, investors will receive Retail Sales for March, the Empire State Manufacturing Survey for April, Business Inventories for February, and the NAHB Housing Market Index for April.

Market Internals – Friday 13 April

NASDAQ stays positive YTD, Russell 2000 turns positive YTD, DOW and S&P still negative YTD.

(Excerpts from Briefing.com)

Dollar: Dollar Index Holds

The U.S. Dollar Index was little changed at 89.78 on Friday after spending the day inside a razor-thin range. The Dollar Index followed Thursday’s uptick with an early-morning dip, which was reversed in short order. The Index returned to unchanged on Friday morning, but could not climb back above its 50-day moving average (89.85). The Dollar Index surrendered 0.4% for the week.

Bonds: Yield Curve Continues Flattening

U.S. Treasuries ended the week on a mixed note. The final session of the week was very quiet, keeping the 10-yr yield inside a three-basis point range. Treasuries began the day with modest losses, but the 30-yr bond was quick to reclaim its early decline while the 10-yr note followed suit. 10s and 30s hit session highs in mid-morning action, spending the rest of the day inside narrow ranges. The 2-yr note underperformed throughout the day, which resulted in continued pressure on the yield curve. The 2s10s spread compressed three basis points to a new cycle low of 45 bps while the 2s30s spread tightened four basis points to 65 bps, which also marks the flattest level of the current cycle.

The entire yield curve flattened over the week with the shorter maturities rising quickly while the 30-year yield stayed rooted. The spread between the 5s10s narrowed to 15bps from 19bps the previous week as did the 10s30s at 20bps from 24bps the previous week. The 45bps spread between the 2s10s is the narrowest since 2007.

Crude: Brent & WTI break multi-year highs

For the first time since November 2014, Brent closed above $72.00/barrel and WTI closed above $67.00.

OPEC releases monthly oil market report (Thu 12 Apr);

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.3 mln barrels from the previous week. At 428.6 mln barrels, U.S. crude oil inventories are in the lower half of the average range for this time of year. Total motor gasoline inventories increased by 0.5 mln barrels last week, but are in the upper limit of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 1.0 mln barrels last week but are in the lower half of the average range for this time of year. Propane/propylene inventories decreased by 0.4 mln barrels last week, but are in the lower half of the average range. Total commercial petroleum inventories increased by 6.0 mln barrels last week.

Baker Hughes total U.S. rig count increased by 5 to 1008 following last week’s increase of 10.

Metals: Metals continues gains

Agriculture: Wheat strengthens, Corn corrects, Soy spikes

Commodities measured by the Bloomberg Commodity Index closed at 89.28, higher than 86.94 the previous week.

THE WEEK AHEAD

The sixteenth week of 2018 (wk16) tends to be one of the two most bullish weeks of the year over 15 and 21 year averages. However, in the last 10 and 5 years, the middle of week16 tends to be volatile.

Key Economic Dates

In the coming week, the US will publish retail trade, industrial production, building permits and housing starts. Elsewhere, important releases include: UK inflation, wages data, unemployment and retail sales; China Q1 GDP growth, retail trade and industrial production; Japan inflation and trade balance; Australia employment figures; and Canada interest rate decision.

Mon 16 April

Tue 17 April

Wed 18 April

Thu 19 April

Fri 20 April

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SUMMARY

The coming week will see a lot of central bankers from the US, UK and EU making statement that could move markets. Along with the Syria issue, earnings are going to be the centre of attention over the next few weeks. Early indications show bank stocks all beating Wall Street estimates, but J.P. Morgan, Citigroup, Wells Fargo and PNC were down 2 percent or more. The market pros are anticipating that geopolitical tensions could possibly overshadow an earnings season that is supposed to deliver at least a 17 percent increase in profits.

I remain bullish given that week 16 and 17 have a strong history of being bullish. But I will play it safe by going with the Syria issue probably rallying the defence industry. The flattening yield curve is getting serious along with the rising price of oil – all indications of a market topping out. I’ll be watching the manufacturing and industrial production data closely for first indications of a possible contraction along with the language of the Fed members this week.

Happy Hunting!

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Don’t forget to catch me this Saturday, 21 April 2018, for this most eye-opening session about what it takes to be the boss and why the little things we ignore can lead us to ruin.

Mark the date, note the destination and don’t miss this session for anything!

Read up on the synopsis here: Why Most Young Entrepreneurs Fail

Download the app to make your booking!

Or book on Eventbrite: http://bit.ly/conradalvinlim

See you on April 21st!!

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