Almost All Manifest Bearish Harami

Financial Market Report For October 21, 2010

Stocks, Commodities, International Treasury Bonds, and the World’s Currencies manifest bearish harami in advance of report on Greek Debt set for release Friday October 22nd, 2010:  A bear market is underway due to the anticipation of monetization of debt by the US Federal Reserve’s QE II.  

World Stocks, ACWI, fell, 0.09%, manifesting a bearish harami candlestick. New Zealand, ENZL, fell, 0.80%, Brazil Small Caps, BRF, fell, 0.64%, the UK, EWU, fell, 0.69%, and Australia Small Caps, KROO, fell 0.89%, all mimicking falls in their corresponding currencies.  For example, the bearish harami in the chart of the Brazil Small Caps, BRF, mimics the fall in the Brazilian Real , BZF, and the Brazilian Real carry trade, BZF:FXY.

Chart of BRF

Chart of BZF:FXY

European Shares, VGK, fell, 0.25%;  and the Euro, FXE, fell 0.17% to close at 138.73.

ActionForex reports a close of the EUR/JPY at 113.79; and Yahoo Finance reports a close at 113.29

The Asia Pacific Excluding Japan, EPP, and the High Yielding Asia Pacific Excluding, DNH, manifested a bearish harami.  

The 200% leveraged Emerging Markets, EET, fell 0.38%, manifesting a massively spectacular bearish lollipop hanging man candlestick, as emerging market currencies, CEW, manifested a bearish harami.  

Chart of EET

Chart of CEW

The US Shares, VTI, rose 0.17%, the S&P, SPY, rose 0.22%. Nasdaq Internet, PNQI, rose, 1.8% to a new high; as did Retail Holders, RTH, which rose 1.37%. Bank of America, BAC, fell 3.3%.

Commodities, DBC, fell 1.24%, manifesting a bearish harami candlestick. Oil, UCO, fell 3.82%, manifesting a bearish harami candlestick. Base Metals, DBB, rose 0.18%. Natural Gas, UNG, fell 3.9% to a new yearly low. Gold, GLD, fell 1.41% manifesting a bearish harami candlestick.

The World’s Government Sovereign Debt, traded by International Treasury Bonds, BWX, fell .23%  manifesting a bearish harami.

The 10-to- 20 Year US Treasuries, TLT, fell 1.19%, and the Zeroes, ZROZ, fell 1.36%, both to the edge of a head and shoulders pattern.  Of significant note, both rose yesterday to resistance, and fell lower today.    

Bonds, BND, fell 0.08.

The world’s major currencies,  DBV, fell 0.60%, and emerging market currencies, CEW, fell 0.39%.

All of the World’s Currencies, with the exception of the Mexico Peso, FXM, and the Russian Ruble, XRU, manifested bearish engulfing candlesticks and fell lower. Mexico shares, EWW, rose 0.62%, as did Russia shares, XRU, 0.98%.  

This Finviz Screen of the major currencies, FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, CYB,  BZF, XRU , FXY , BNZ , DBV, CEW shows that ten of the major yen based carry trades weakened, with the New Zealand Dollar, BNZ, Brazilian Real, BZF, the British Pound FXB, and the Australian Dollar, FXA, falling the most in value.

The ratio of the small cap value shares, RZV, relative to the small cap growth shares, RZG, … RZV:RZG …  rose to what I call a “saddle up, lock and load” position, that is a pull the trigger all the way back position, suggesting that that the currency-volatile small cap value shares are fully loaded to explode massively lower.   

The chart of bonds, BND, shows that the world passed through Peak Credit on October 7, 2010 when bonds topped out at 82.93 as seen in Yahoo Finance Chart of BND.  And today’s fall lower of Junk Bonds, JNK, suggests that peak investment liquidity has been achieved.

The debt deflationary bear market of April 26, 2010, that commenced with the onset of the European Soveign Debt Crisis, recommenced October 19, 2010, when the World Shares, ACWI, fell to 44.20, and the S&P, SPY fell to 116.73, in response to major currencies, DBV, amd emerging  market currencies, CEW, turning lower on on October 14, 2010.

International Treasury Bonds, BWX, tuned lower on October 8, and October 18, 2010, in response to the major currencies, turning lower on October 6, and October 14, 2010, in response to US Treasuries, TLT, topping out and turning lower.

The bear market began as currency vigiglantes sold yen based carry trades in response to the anticipation of QE 2 being debt monetization, that is toxic to the longer out bonds  …. and bond vigilantes calling the interest rate on the US 30 Year Government bonds, TYX   higher from 3.71%.  

It was at this time that the yield curve $TYX:$TNX rose to 1.55. 

The high level in the yield curve, was at one time a good thing; that is up until the longer out US Treasuries, TLT. turned lower on October 7, 2010, and thelonger out corporate bonds, BLV, turned lower on October 13. .  Now a higher yield curve is toxic to bonds as it is calling the longer out interest ratew, ie $TYX, higher, very quickly. This will slow economic growth and cuase businesses to shutter.

I envision the day coming very soon a liquidity crisis will occur in the stock and bond markets, and then soon thereafter the US Government will be the sole provider of credit to America; and that credit will be primariy for the strategic needs of the North American Governments, including Canada and Mexico.

 Chart of BWX, DBV, and CEW

Chart of BWX, DBV, CEW, and FXI

Today’s fall lower in most all of the world’s currencies, is quite bearish for both stocks and bonds; and suggests that indeed a bear market has recommenced due to the fall in major currencies, DBV, and emerging currencies, CEW.

The chart of DBV, CEW, ACWI, and EEM shows that a bear market has been underway since October 14, 2010 on lower currencies.

Also, the stocks and bonds fell lower on rising interest rates in China. David Barbosa and Christine Hauser of the NY Times reported on October 19, 2010: A surprise announcement by China’s central bank that it would raise interest rates for the first time in nearly three years jolted world financial markets, as investors worried that China, the world’s second-largest economy after the United States, could slow and crimp the global recovery.

Chart shows that carry trade investment has come out of gold, GLD, and it may not be a safe haven investment until a lower price is achieved.  

For those interested in short selling, I recommend EWO, KBE, ITB, INP, IWM, RZV, EWD, BX, TAN, EWP, PNQI, KROO, FAA, RTH, BWX, EPOL, BRF, DNH, SKOR, PXN, BJK, and ESR… seen in this Finviz Screener along with TLT, ZROZ … and URTY, RETL, SOXL, EET and most importantly, UYG.

Tomoko A. Hosaka, Associated Press writes Currencies center stage as G20 gets underway:  G20 tasked with quelling foreign exchange battles as Japan warns of risks to global economy

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