Weekend Strategy Review April 23, 2017
Posted by OMS at April 23rd, 2017
The Dow fell 31 points on Friday, closing at 20,548. It was up 95 points for the week. The NASDAQ finished down 6 points on Friday and up 105 points for the week.
The French will be holding the first round of their Presidential elections on Sunday. Should no candidate win a majority, a run-off election between the top two candidates will be held on 7 May 2017.
Marine Le Pen, the far-right leader, is locked in a tight four-way contest with centrist Emmanuel Macron, conservative Francois Fillon and Communist-backed firebrand Jean-Luc Melenchon. Macron and Le Pen had long led the presidential campaign but Melenchon and Fillon have closed in on them, with Fillon regaining some support lost to an expenses scandal. Sunday’s contest should be interesting to watch because if the two extreme candidates, Le Pen and Melenchon are the two finalists, it will result in an immediate shake-up of the European Union (EU). Both candidates have openly stated that they want France to leave the EU. This result would cause a significant impact to the Euro and the Dollar.
My guess is that Sunday’s election will send Le Pen and one of the more moderate candidates to the finals in May. I shudder to think that the French would vote for a Communist. But ya never know.
And that’s why on Friday, when I looked at the chart of UUP, the Dollar ETF (attached), I thought I would talk about the French election and its impact on the Dollar, gold, Bonds and the equity markets this weekend.
The Hockey Stick Pattern evident on the chart clearly suggests higher prices for the Dollar in the future. Hmmm? Could the pattern be predicting a Frexit?
If you recall, immediately after the Brexit vote, the Pound fell and the Dollar rallied. Gold also rallied, which was one of the few times that both gold and the Dollar rose together. We could see the same thing happen again if France decides to leave the EU. The economic turmoil of a French departure would be the death knell of the EU, and the Euro, leaving the Dollar as the world’s strongest currency. Imagine what would happen if the EU collapsed and there was no Euro?
The other thing to watch is Bonds. For the past few weeks, money has been pouring into U.S. Bonds. This has caused the two Bond Funds, TLT and TMF, to move to the top of the Dean’s List.
After completing a Three Lows to a Bottom Pattern in March, TLT has moved off its bottom, made a ‘Rope Jump’ on 18 April, and is now challenging its 200-day moving average. Hmmm?
Bonds are usually perceived as a safe heaven, especially when things get dicey in Europe. We saw this happen in 2011 when Moody’s dropped the credit rating of U.S. Treasuries to Double “A” status. Everyone was saying “Sell Bonds” at a time when TMF and TLT were at the very top of the Dean’s List. Turned out the Dean was right and the Wall Street pundits were wrong as European investors poured billions into U.S. Bonds. A Double “A” rated U.S. Bond looked extremely good to Europeans when most their Bonds were being lowered to junk status. Hmmm?
We saw a similar thing happen to Bonds, gold and the Dollar immediately after Brexit. After the 23 June 2106 vote was announced, TLT rose from 132 to 143. Brexit was only the trigger for a large Hockey Stick pattern that had been forming on Bonds since early January 2016.
So once again, I’m seeing Bullish Patterns forming in the Dollar, Bonds, and gold. BTW, gold remains in an UpTrend, but probably needs a small pullback before moving higher. The Dow remains stuck in a Wave ‘D’ correction. Once this wave completes, the pattern suggests new highs into late August – early September. Could the U.S. market be waiting to see what happens in Europe in early May? Remember, the Dow is in a consolidation pattern. These patterns form because the market is waiting for something to happen.
So, Sunday’s French election should be very interesting. Maybe not right away, but if it starts to look like Le Pen will win in May, you can only imagine what will happen to U.S. Bonds, the Dollar, gold, and the U.S stock market as Europeans start to move money to safer havens in the U.S.
Have a great weekend.
That’s what I’m doing,
h
Market Signals for
04-24-2017
DMI (DIA) | NEG |
DMI (QQQ) | POS |
COACH (DIA) | NEG |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEU |
SUM IND | POS |
VTI | POS |
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All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.
Category: Professor's Comments, Weekend Strategy Review