World markets are making topping patterns. The US has just completed a topping pattern. I will watch the market action on Friday to decide if I want to go short. The volatility is so high I might pass this trade up.
My years of watching markets, I have noticed that day patters that launch into weekly patterns are some of the best trades to make.
For instance, looking at the daily pattern for the SP500 and DIJA show a descending triangle pattern.
This has launched into a massive double top on the weekly pattern.
There is not much resistance below this point.
While I took the Russell 2000 short and escaped with a nice profit, I was concerned about the volatility. If you have the stomach, I would recommend a short here and now.
As I recommended a month ago here and here, you should be on the sidelines for this correction with cash.
Certain data points have gone from green to yellow. I am not ready to declare a recession forecast just yet though. A month or two from now the picture will be clearer.
Now I want to discuss the bond market, since the bond bears are out and about predicting rising interest rates. As you recall, we made a nice profit going long the bond market here.
Take a look at the chart below.
The moment investors start to panic they rush into the bond market. This indicates to me that during the next recession bonds will rally. Until I see a change in the psychology, there is no reason to believe the bond bull market is dead. The ‘muscle memory’ built into this market is 40 years in the making. The fundamental component for a bond bull market ended 15 years ago. But here we are. It could go on for another 10 years. I think the possibility of negative interest rates and 30 year mortgage rates of 1% is very possible.