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THIS IS A MAJOR DEMAND SHOCK

If you have not looked at the charts from the prior two posts please do so.  Without providing too much verbiage, let the charts do the talking.  

In these charts:
  • Blue lines marks the daily support/resistance.
  • Yellow marks weekly support/resistance.
  • Red marks monthly support/resistence.
These represent multiple timeframes and for a support/resistance to flip (a potential trend change in that timeframe), a close must occur in that window.  For example, for the daily trend to change, the closing price must be above the support/resistance line.  

The strategy employed by this writer is simple as mentioned in nearly every post for months: 
  • If the price closes above/below a specified level denoting a trend change, a buy/sell is made in that timeframe. 
  • Stops are placed below daily support, weekly support, monthly support using the timeframe just below it (daily trend uses an hourly stop, weekly trend uses a daily stop).
  • Buy orders are placed when the trend closes above a daily price level, weekly, monthly etc.  
  • Therefore, buying and selling are done in increments.
  • As a trend moves in one direction or another, the price levels indicated in this post are subject to change. 
Now onto the charts:

Key Weekly Charts with levels to watch

  • 10 year yield daily trend: Down and needs to close above blue line for a short-term trend change (1%).
  • Weekly trend: Down. Even if the daily uptrend is triggered on a close above 1%, the weekly downtrend is still very much in force.
  • Monthly trend: Down.
  • The collapse in long-term yields came at a time when the speed of the decline was already off the charts historically.  This speaks to the severe flight into the safest securities on the planet. 
  • Daily trend: Up
  • Weekly trend: Up
  • Monthly trend: Up
  • The bullish dollar index (UUP) has and continues to be a GREAT indicator of risk sentiment.  In a matter of a week, the dollar's move exploded to the upside.  This does NOT bode well for risk taking.  The dollar's move suggest we are in an UNPREDICTABLE situation.  A dollar funding shortage is at hand (particularly to economies tied to Chinese growth, EM, and the commodity sector) unless emergency actions are taken. 
  • Much like the USD dollar index, the Chinese Yuan is now in a downtrend on all timeframes.  As mentioned throughout the years on this blog, we should be very cautious when the USD is trending higher against the CNH.  
  • This does NOT mean that short-term trends and reversals in risk appetite will not occur (they will), but the trends in CNH are warning us NOT to be too aggressive in terms of taking risks.
  • Bulls will want to see a decline in USD/CNH below 6.99 on a daily close, 6.9 on a weekly close, 6.81 on a monthly close.
  •  As highlighted in the March 2nd post, the daily and weekly trends in US indices continue to be down.  A close above the daily trend level (blue line) will result in a short-term trend change.  What one must remember is that in this environment should the daily trend flip positive, the rebound must be exited as soon as the short-term trend reverses itself.  Please have an exit strategy.
  • The weekly (yellow) or intermediate trend is still so far off that any bounce to the upside will very likely dissipate as selling pressure (resistance) comes back into effect.  Given the speed of the decline and level of volatility, there are many trapped with risk exposures that are too large.
  • What changed in the rest of March is that the monthly trend is very much in question.  Not only that, but the bounce on Friday March 13th visualized above came on a key quarterly support which underpins the secular trend thesis.  Simply put, investors should be very careful if a monthly close below the red line occurs.
  • This writer is not in the business of making recommendations (everyone must have their own plan), but it appears very likely that rallies are more likely to be sold and any upside participation should be done on a short-term basis accompanied by STRICT risk management.
  • Even in the best case scenario, investors need to understand that this will be a process.
  • In the worse case scenario, the secular uptrend is now at major threat of being lost.  
  •  A mirror image of US indices is the VIX short-term futures ETF.  The weekly and daily trends are still up.  A reversal and close below the blue line, will confirm a potential reversal in US equities.  
  • Bounces in risk assets will occur along the way. However, even in a return of short-term risk appetite, investors should use that as opportunity to reduce risk if the daily trends in VIXY reassures itself.
  • On the other hand, increasing the degree of risk is imprudent until volatility declines at least a bit further.  The daily trend change in both VIXY and SPX may trigger as soon this week (or not at all).  Please exercise caution.
  • As is the theme, HYG is clearly in a collapse across all timeframes (high exposure to energy sector).  A daily entry may trigger above the blue line, but again investors must exercise caution longer term as this will face major resistance on the way up even in the best case.
  •  EEM has broken every major support.  With the dollar rising, emerging markets are breaking down severally.  Investors must be aware that this may only be the start of a major long term decline in emerging markets.  Simply, investors need this market to stabilize as soon as possible.
  • FXI, Chinese index fund, is in a downtrend on all timeframes.  The theme continues, a change in the daily trend will see this flip positive for a short-term bounce.  That is too be determined even if this could happen as soon as early this week.  Until then the trend is down on a daily, weekly, and monthly basis. 
  • Anyone surprised by the drop in oil (not the degree of the drop which was astonishing) has not been paying attention.  Oil much like commodities have been in a secular decline.  Oil is in a downtrend on all timeframes and the least likely to produce a daily uptrend before other risk assets do.
  • Eventually the oil secular bear will end.  We are not in the business of catching the ultimate bottom in the years ahead but participate when oil's major trend down has ended.  

Monthly charts across the world are signaling a MAJOR shock is happening.
  • Transports are collapsing and desperately need institutional support. 
  • The US Oil & Gas sector fell through a floor and desperately needs institutional support.
  • Materials, Commodities, Metals & Minerals are collapsing and need support.  This is severe disinflation/deflation before our eyes.
  • US Banks and Securities Broker/Dealers are on the brink and need major policy support.
  • World ex-US Equities broke major support and are on the brink and need institutional support.
  • The Value Line Geometric Index, a broad range of US equities, has decisively broken long term support.  This is MASSIVE.
  • Europe is on the brink and needs major support.
  • This is HUGELY significant.  EMB, USD Emerging Markets Bond Fund, is on the verge of a major 10 year breakdown.  
  • Inflation Expectations have COLLAPSED.  This is a rapid demand and expectations SHOCK. 

This is NOT a drill

The markets are speaking.  To combat the virus, the economy is experiencing a MAJOR Demand shock.  The entire world will eventually adopt measures that risk a major economic disruption.  Policymakers all over the world must do whatever it takes to prevent the economic downturn from getting out of hand.  

What do you call a...
  • Global US Dollar deleveraging due to a dollar shortage as institutions and households raise liquidity at the same time
  • Oil price collapse that threatens the US energy sector
  • Emerging Market dollar debt crisis
  • A collapse in commodities
  • A potential Eurozone institutional threat
  • A rapid reduction in Chinese growth
  • A collapse in global demand that might scar an entire generation to contain a pandemic that has no definitive timetable.

ALL AT THE SAME TIME.  



I am supremely confident that the Fed will do whatever it takes.  However, this is a massive shock to expectations.  Households and SMEs will need direct fiscal support.


The spirit of this blog is to follow the direction of a broad range of markets which are attempting to discount this shock.  The screens are screaming that the global economy is on the brink and needs massive support.  Either fiscal policy expands now to fill the hole in the global demand side to fight the virus as economies progressively shutdown or the costs will be greater later when we are dealing with a viral outbreak amid high rates of unemployment and a financial crisis due to household and SME strains that permeate to every industry.

Should all of the above markets bottom durably, then these views will be subject to change.  It's up to market participants, major institutions, and policymakers to decide.  It is in their hands now.

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