Amazon (AMZN) Chart Review

Amazon has been on an incredible bullish run over the last 6+ years for investors and traders that have held long term positions in Amazon.  For the loyal shareholders they have been well rewarded as the stock has climbed by over 370% since the lows reached in March 2011. If you had held the stock over a longer period the returns would be even higher.

Back in April of last year it broke out of a consolidation period and accelerated its uptrend pace as the stock started to climb faster, as the stock continued to make new record highs reaching a closing high back on the 5th of October of $844.36.

Fast forward to the end of November 2016, and it appears that Amazon has broken its most recent uptrend (See chart below) with the current price sitting at $762.52.

Amazon's Uptrend Within An Uptrend

The good run for Amazon appears to be slowing down for now, as the current uptrend has ended on a monthly chart. With one more trading day left for the stock it appears unlikely to jump back within the uptrend. If the break of the uptrend occurs the most likely target over the medium term for Amazon is a move towards its previous uptrend which is highlighted within the chart.

The first level of support for the stock to reach is around the $676 level. Given the price is above $500 per share you have to give a little bit more flexibility with support and resistance levels as the levels are not as closely defined.

Consolidation Pattern Possible

Amazon may not necessarily fall considerably over the next few months, as its a very strong bullish stock relative to the S&P 500 market. Its quite possible that you could see the stock struggle to move higher with the likely outcome that it move sideways to slightly down as it heads for the previous uptrend forming a consolidation pattern.

Lastly the momentum has fallen sharply over the last few months making a lower low even though the stock is near all time highs, indicating there is divergence and the rally is running out of steam.

The break of the uptrend for weekly chart below is not as clearly defined. The stock had recently closed below the uptrend 4 weeks ago only to pop above the uptrend again, with a rally to coincide with the overall market move higher from the US election results.

With only 1 trading day completed into the week the stock has once again closed below its uptrend. As its a weekly chart it would be ideal to wait for a completed weekly candle at the close on Friday to confirm that Amazon has also closed below its uptrend on a weekly chart.

If the confirmation is complete for a reversal in trend, expect the stock to move towards its first support level around the $681 - 682 level. If support is respected and it holds that level you could see the stock once again attempt to reach its prior all time highs around the $842 - 843 resistance level.

I have circled the previous false attempt to close below its uptrend back in February this year, so make sure to be patient and seek confirmation.

Momentum is only marginally positive at 2.38 haven fallen from over 157 several weeks ago. This indicates that the strength of the trend has practically disappeared. Look for momentum to move to the negative soon to coincide with the stock moving towards support.

The trend is clearly over on the short term daily chart, where I have circled on the chart where it popped lower closing below the long term uptrend.

After breaking its previous support of $788 it proceeded to the $717 / 718 level of support, after retracing back to the new resistance level of $788 creating a change of polarity. Once it reached resistance it has proceeded to begin falling again confirming the new resistance level. This is a bearish signal as the bears are now in control on a short term basis.

The price is currently sitting below its 50 day moving average and the 10 day moving average has crossed below the 50 day moving average signalling a reverse in trend.

Caution Ahead

Normally based on the price action only I would say that the stock is moving next to its $717 / 718 support level again. However the momentum indicator is showing divergence having recently turned positive and accelerating higher. This indicates to me that we could see Amazon make a push higher to break above resistance of $788. If this was to occur it would also reverse it new daily chart downtrend.

Based on the conflicting indicator we would need to see more price action from Amazon to determine its likely direction in the short term.

By the end of the week we should have confirmation on all 3 charts the trend of Amazon moving forward.

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The Perfect Storm Set To Pop Aussie Apartment Bubble Bringing Down The Economy With It

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On the weekly chart below it's not looking as bullish for a reversal just yet, as there are few things still required to confirm a reversal.

The positives:

*The current price on the weekly chart of $5.03 is above the 10 week moving average of $5.00.
*In addition the previous week strong up week was on above average volume which is a bullish signal.

The Negatives:

*The price action on the weekly chart is currently below the resistance level of $5.10. (See chart)
*On a weekly basis the chart is still within a down trend, with a close above $ 5.60 - $5.70 required for confirmation.
*The 10 week moving average is below the 50 week average showing bearish cross.
*Volume on the week just completed was below the average showing that there was a lack of conviction with the move higher.

Overall we would need to see on the weekly chart the price move above $5.70 level with above average volume to confirm that the current reversal taking place is valid.

Reversal Of Downtrend - Daily Chart

The daily chart is showing good signs of a reversal in trend.

The first important thing to note is that the downtrend that started back in July this year has ended, as the current price is clearly above the downtrend line. (See circle in chart below)

The closing price on Friday of $5.03 is now above the previous resistance level, which is now the new support of $4.94. Its important to stay above this level to confirm the reversal.

Lastly the price is above the 10 and the 50 day moving average which is also a bullish sign.

Caution Ahead - Where Is The Volume?

One of the most important things in trading after the price action is volume. Whenever you are trading and you are looking to go long (price to go higher) its essential that you have above average volume for confirmation to ensure the market is behind you with your trade. You want to be with the herd to catch the biggest moves not against it.

If you take a look at the chart, I have circled the volume below. With the last 5 days trading volume all below the daily average volume. This is a bearish signal.

Because there is a lack of conviction with buyers on the daily chart, I would wait for the chart to move above the next level of resistance at $5.22 - 25 with an accompanying above average volume to confirm the reversal has taken place.

There is a high possibility that Telstra could fall back within the down trend and close below support of $4.94 in the short term due to a lack of volume with the current price action.

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The Perfect Storm Set To Pop Aussie Apartment Bubble Bringing Down The Economy With It

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The Aussie apartment boom that has turned into an epic bubble with record sky high prices, is showing all the signs for the perfect storm which will ultimately pop the apartment boom bubble. With the popping of the apartment boom, it will simultaneously bring down the Australian economy, as the apartment market is set to have a sizeable correction in 2017 and 2018.

A short Look At Australia's Real Estate Market.

Australian real estate prices have been going up for over 25 years with hardly a pause in between since the late 80's. The last time real estate prices fell considerably was when Australia last had an official economic recession back in 1987, when interest rates skyrocketed to around 17-18%.

The chart below show the price growth of real estate, rents and CPI since mid 1987. Initially the price growth of Australia's real estate market climbed steadily taking 11 years to double in 1988. From there the price growth continued to accelerate with the next 100% increase in price taking 4.5 years to reach.

An interesting observation on the chart below is that real estate prices have risen by over 700% since 1987, yet rents have risen  just under 300% over the same period. This chart clearly shows that the majority of the price growth was not supported by a fundamental increase in rents to support the higher prices, but rather an massive surge in mortgage debt over the same period drove prices higher.

Rising Credit Leads To Booms & Contractions In Credit Lead to Busts

Professor Steve Keen in the interview shown below highlights his own reasons why he see's a recession coming in 2017 for Australia.

Steve highlights a number of reasons for his prediction, including a deteriorating terms of trade, the ending of the mining investment boom, the Government's pursuit to cut spending and a reduction in foreign buyers for real estate among others. However, the most important reason is a deceleration of credit / mortgage debt. Based on Steve's research and economic models the deceleration of mortgage debt growth is the leading cause for all economic downturns globally including the US, Japan and Europe economic recessions, with a correlation close to -1. What all his research showed is with the deceleration of mortgage debt growth, lead to a collapse in real estate prices which then lead to an economic recession in those countries.

Due to this research, Steve believes Australia will react the same way as other countries based on slowing growth in mortgage debt. Especially, as the conditions have already begun to slow based on the bank's tightening their standards overall. However, most of the lending restrictions imposed from the banks are for off the plan apartments and existing apartments within most major cities around Australia.

Given Australia was recently ranked number 4 in the world in the UBS global real estate bubble index, see: Australia's debt addiction fuels record real estate bubble, its easy to see that prices could fall over 20% as lending conditions continue to tighten and their effects take hold.

Why Are Banks Tightening Lending Conditions With Record Real Estate Prices?

The simple reason is that the banks do not want to be caught in a credit crunch like they faced back in 2008 and 2009 where they had to have the RBA and the US FED provide considerable financial assistance to keep them afloat.

Right now the banks can see what everyone else can see if you look at all the data publicly available. Australia will face a major oversupply of apartment dwellings over the next 1 - 3 years from a major ramp up of approvals of apartments. The growth of approvals over the last 7 years which you can see in the chart below, is leading to a big jump in the construction of apartments with a number of them being competed in the next 18 months.

Due to the rapid increase in approvals there has been a massive spike of cranes currently being deployed in Australia, to handle the apartment boom that is currently taking place. As you can see below in the chart Sydney and Melbourne are leading the way in Australia, dwarfing most major cities in the US including New York and LA.

With all the current construction for apartments taking place from the buildup of approvals, especially in the last 3 years, Australia is facing a glut of new apartments that are about to be completed in 2017 and 2018.

Knowing the upcoming glut of apartment completions is about to come available on the market soon, the banks have taken action to protect their capital by providing most of their tightening around new and existing apartments within the CBD's of Sydney, Melbourne and Brisbane where most of the construction has taken place.

Highest Housing Completions = Biggest Housing Price Fall

The chart below shows a comparison of house prices in Australia, UK, Spain, US and Ireland with an accompanying housing completions chart.

The most obvious data from the chart is both Ireland and Spain had the biggest fall in prices during the GFC in 2008 relative to the other countries shown. Those 2 countries also had the largest ramp up of new housing completed from 2000 - 2007.

Surging Bond Yields Leads To Higher Mortgage Rates In Australia.

Back in October US Government 10 yr bond yields were sitting at around 1.55%. Fast forward one month and rates are now sitting at around 2.3%.  A 0.8% increase from the October levels (see chart below). The reason why this is a big deal, is that the US Government bond yields are what are utilized to benchmark most of the different types of retail and commercial loans.

In Australia the banks also rely heavily on overseas markets and especially the US markets to provide the necessary funding to support their loan book. So as bond yields have skyrocketed in such a short period in the US, it has already led to the banks in Australia lifting rates by between 0.20% - 0.60% on their fixed loans as their funding costs have jumped dramatically.

With mortgage rates rising and lending conditions being tightened its becoming more difficult for developers to sell their off the plan apartments as investors find it more difficult to access bank lending to finance their purchases, resulting in a slump in demand for off the plan apartments.

Melbourne Developer Offers $21,000 To Encourage Buyers

In an attempt to lure buyers to a new off the plan development in Melbourne, a large well known developer is now offering $21,000 to investors in an attempt to sell their $420,000 1 br apartments in Southbank Melbourne. The idea is to match the investor or first time buyer's 5% deposit of $21,000 to  least assist them in meeting a 10% deposit.

The problem that this Melbourne developer and other developers will find, is even with this huge financial incentive, many of the banks in Australia have lifted their minimum deposit requirements for off the plan apartments in major cities to between 15% - 25% deposit.

Apartment Bubble Bursting Leading To Australian Recession

Similar to Professor Steve Keen's prediction that a recession is coming to Australia in 2017 or early 2018, I also believe that the perfect storm of conditions are developing that will soon pop the apartment bubble that has been taking place in Australia.

When the correction in apartment prices takes hold, it will have a domino effect on the Australian economy, leading to a contraction in economic activity in Australia. The reason for this is because the real estate industry and related industries now has the largest contribution to GDP at around 28%. (See chart below)

With record amount of apartment construction taking place over the last few years, fueling a considerable amount of GDP growth, I believe the slowing of the construction industry will start to subtract heavily on GDP growth in 2017 and 2018 leading to Australia's first recession in over 25 years.

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On Friday the Australian big banks which make up the majority of the Financials Sector finally were about to break out of its year long resistance, as it finished just above its 6,820 resistance at 6,823. The strong performance from the banks on Friday also lifted the Aussie XJO 200 index higher to 5,359.

Since the US election results were released some 2 weeks, the US markets have been on a strong V like sharp recovery which had lifted most world markets with it. This included the Australian stock index XJO 200 which up till recently had been struggling. The bullish performance of the US markets had also been the catalyst for the  reversal in banking stocks higher in Australia. Which in turn significantly helped the XJO index with its recovery.

The Key Questions To Answer Going Forward

Is the Financial sector breakout a false breakout, or will the financials sector hold its bullish momentum going forward?

Can the financials continue to lift the XJO 200 higher out of its downtrend and back into an uptrend?

Lastly will the strong run from the US markets continue and support the XJO 200 index higher?

Can The Financial Breakout Be Trusted?

Since the breakout on Friday for the Financials sector excl A- REIt's was not exactly an overwhelming strong breakout, as it closed 3 points above its year long resistance. The most sensible idea would be to wait for more information from the market.

Overall the technical's looks good for the sector, however it's usually best to wait to see if the sector moves higher and can be supported by the strong momentum. If the sector can than retrace and rests on its old resistance level of 6,820 to form a new support level this would confirm the breakout.

If the sector moves higher from here this week and later reverses to close considerably below the 6,820 level, to say the current 6,580 support level this would confirm it was a false breakout. Considering this is the seventh attempt this year to break out higher there is a higher probability that it will not be able to maintain the breakout.

Note: Why The Financials?

For investors and or traders who are not aware of the significance of the financials sector in driving the overall performance of the XJO 200, I wanted to quickly highlight that financials excl A REIT's sector has the largest weighting on the XJO 200 index. With 4 out the top 5 largest market cap stocks within the XJO 200 belonging to this sector.

Big Picture Review - XJO 200

The XJO index has had a mediocre calendar year so far, however before having a closer look at what's been happening I wanted to quickly review the long term chart for perspective.

The first thing to note is that even though the index is currently been trending lower, the index has been able to hold its 5 year long term uptrend. This is despite being within a mini downtrend inside its longer setup uptrend.

You can see on the chart below that on a monthly basis it touched its trend line 4 times over the last 5 years and respected the trend before heading higher each time.

Currently in the month of November you can see that the index had fallen considerably touching a low of 5,052 which was the day of the US election results. However just like the US markets the XJO was able to rally stronger to close on Friday at 5,359 and is currently up for the month.

Since it respected its uptrend and has completed recovered from its earlier monthly losses it's behaving very bullish on a monthly chart and based on previous history since 2011 it would indicate that the index will be heading higher over the coming months.

To confirm the bullish action and a continuation of its uptrend  on a monthly chart, we would need to see a monthly close above its down trend as indicated in the chart below with the rectangle box area. Otherwise its possible we could see a reversal of its uptrend if it its unable to close above the down trend and it respects the downtrend line.

Within a weekly chart (See chart below) the index does not look strong when compared to the strong uptrend performance over the last 5 years.

After reaching multi year highs in March 2015 the index has been steadily heading lower and has now formed a down trend that it has failed to close above on a weekly chart.

I have circled on the chart action the 2 times in the last 18 months where it has failed its uptrend. Once in August last year and again this year in late October. The first time it happened in August you can see the index fell sharply for several months.

Since the momentum on a weekly chart is negative at -156 and the index is still within its downtrend, it's likely we could see the index move higher in the very short term to the downtrend line (shown on the chart) before pulling back.

On the chart I drawn the 2 possible scenarios I see that could happen over the coming weeks.

1. We see the index move higher, than have a slight pullback before continuing higher and closing above its downtrend. (The Financials sector would have to hold its breakout to support the XJO 200)

2. The index moves higher, touches the downtrend line and reverses back down to 5,030 support level.

Daily Chart - Downtrend With Bullish Indicators

Whilst the daily chart is currently in a downtrend and has broken its long term uptrend, the chart has a number of bullish indicators present that could see the index reverse its downtrend.

* The momentum indicator has recently turned positive and is now at 130 after its strong rally from the lows reached on Election day.

* The current price of 5,359 reached on Friday is above the 10, 50 & 200 day moving average.

* After breaking support of 5,195 on the 9th of November the XJO 200 index quickly reversed back above its previous support level the next day, indicating a false breakout of support.

The Key Levels To Watch

For the daily chart of the XJO 200 to continues its strong move higher and reverse its current downtrend, we would need to see a confirmed close above its 5,390 resistance level. If it can close above that level and its downtrend line marked on the chart, we could see the index continue back on its previous long term uptrend.

Failure to close above 5,390 resistance and its downtrend line would result in the index most likely falling back to the 5,195 support level.

To finish the review of XJO 200, I wanted to take a look at the price action of the US S&P 500 index since the US markets usually moves the Australian index with it.

S&P 500 Stuck At Resistance

On Friday the S&P 500 index briefly touched a daily high of 2,189.89 which was just slightly below its current resistance level of 2,190.

You can see on the chart below that the index had reached the resistance 2 prior times already back in August this year before fading lower.

Considering the US index has had a strong rally higher since the Election results came out 2 weeks ago, the likely outcome in the short term is that the US index will pull back briefly over the coming days. Its even possible that after such a string of higher days over such a short period that the index could fall back to the 2,155 support level, before considering another attempt to close at an all time high.

If the S&P 500 index is unable to climb higher in the very short term, it would have a negative impact on the Australian XJO 200 index in its attempt to continue higher. 

So to sum up the review there are another factors in play that could effect the XJO 200 direction. The biggest factor in the short term being the strength of the US markets, which directly impact the direction of the Australian financials sector which considerably impacts the bigger XJO 200 index overall.

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Gold has been on a wild ride since the US election results last Wednesday, climbing to a high on the day of the election of $1,336 before slumping lower at the end of the trading closing at $1,277.

Since last Wednesday investors have continued to dump the precious metal as the selling accelerated. On Monday morning the selling resumed as the world and investors continued to digest the shock victory of Trump and what this means for the US and the World.

During Monday's trading day Gold slowly recovered some of its losses to find support as investors bid Gold higher into Tuesday's trading, where it currently sits at $1,227.

Gold Chart Review

To gain a better understanding of the where Gold is most likely heading over the coming weeks, its always ideal to take a look at a longer term chart to see where its been in the past. 

If we take a look at the weekly chart of Gold below, you will notice that bullish uptrend that began in late December last year ended in September as it was unable to stay above its trend line. (See circle over price chart)

Since September Gold has been on a steady decline lower even though it made an attempt to climb higher towards its new down trend line (now at 1,300 level), before reversing and heading back down again to the current price of around $1,227.

Presently its only 15 dollars off its support line at $1,212 which previously was a strong support level during its uptrend cycle back through February to May this year.

Failure to hold the $1,212 level on a weekly basis, Gold's next support level is around the $1,176 level. If it was to reach the lower support level that would be another $36 lower from the $1,212 support level.

Given the big selloff last week, its quite possible that we may see a temporary rally higher potentially back to the $1,295 -$1,300 level before once again reversing and falling below the $1,212 support level towards $1,176 support as indicated in the chart. (See black lines on chart)

Lastly I have included the momentum indicator on the weekly chart, which is currently sitting at -93 to show that Gold is in a strong bearish position and firmly stuck in a new down trend.

Now that the market has decided that the big risk factor of the US election is over, the market has chosen the direction for Gold. Given the current technicals its unlikely the overall long term down trend direction will change for some time.

 With the daily chart below you can see that the selling as stopped for the time being as the $1,212 support level held after consecutive days of selling.

Similar to review of the weekly chart, its likely that Gold will stage a rally higher off the support level over the coming week or two. The most likely targets are the first resistance level at $1,254, followed by the new down trend resistance level. The downtrend resistance is indicated with the arrows within the chart with the first resistance around the $1,285-90 level followed by the original downtrend resistance at $1,330.

Once the short term rally has exhausted itself over the next 1-2 weeks, we could see Gold reverse as it heads back down to $1,212 support. Given its downtrend trajectory and the technicals showing bearish signals, we would most likely see Gold fall below the $1,212 support to the next support level of $1,168 - 70 support level over the medium term.

December Wild Card For Gold

Keep in mind the wild card that is coming up in December is the FED committee meeting, where the market is currently pricing in an over 80% chance of an interest rate rise in December. If this occurs in December its possible that Gold could react similar to last December FED decision. If you recall nearly a year ago Gold spiked  significantly higher reversing the downtrend and beginning a new uptrend.

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The US election results are in and the US stock market is enjoying a sharp rally over the shock news of Donald Trump winning the election and becoming the new President elect.

On the back of the big rally in US stocks there has also been another big shift occurring in another very important asset class, US Government bonds.

US Government Bond Yields Surging

Since the news of the results of the US election were released US Government bonds have experienced a huge sell off in prices causing the yields to surge on Government bonds ranging from the 2 year bond all the way to the long end with 30 year Government bonds. (Note: Bond yields move inversely to bond prices.)

Specifically the US 10 yr Govt bond has seen the yield jump from around 1.80% before the election results to the current price of around 2.13%. (See chart below)

In the chart below you can see the magnitude of the rise in US 10 yr bond yield reaching the same level of the S&P 500 dividend yield.

Traditionally bond yields help to price the relative value of stocks. If bond yields rise the dividend yield on stocks would also have to rise. Usually stock dividend yields are above bond yields to entice investors to own riskier stocks over more conservative bonds. For the yield to rise on stocks either  dividends would need to rise and or stocks would have to fall in price to lift the dividend yields.

So the fact that the 10 year bond yield has reached the same level of the S&P 500 dividend yield means that a bond investor can receive the same yield as stocks without the perceived risk.

Normally when Government bond yields rises considerably it indicates that either inflation is also rising and / or the economy is accelerating it's growth prospects. When the economy start to accelerate its growth prospects investors traditionally buy stocks in anticipation of higher profits and dividends from a stronger economy and sell bonds which are considered defensive assets.

Many analysts and financial commenters have already come out and suggested that growth is now back on the agenda for the US economy since the electing of Trump as the new president. Because of the Trump factor these commentators have suggested this is the reason why bond yields are rising and suggest it's a positive.  

Why Surging Bond Yields Signals Pain Ahead

However we are not in normal times and there is a very big reason why the FED has spend the majority its balance sheet trying to keep US Government bond yields low, by buying them through the various QE programs and artificially forcing the bond prices higher lowering the yield.

It's also the same reason why the FED has only increased the interest rates once back in December 2015 and has been terrified to rise them further since then. The reason is because the US has a major debt problem from a Government , corporate America and consumer level.

So if the FED has tried all this time to keep rates lows, how is it all of a sudden a good thing for the Government, corporate America, the consumer and the economy that interest rates are now rising. Especially when the debt levels in the US are higher now than before the 2008 GFC event that shook the US and Global economy.

Increased Government Spending

Back in August this year Trump gave a short interview  with CNBC, discussing some of the problems in the US and how he was going to fix them.

In the video below he specifically discusses increasing spending on the military as well contributing over $500 billion to the ailing infrastructure in the US.

How Will It Be Paid For?

When asked by the CNBC host how will he pay for all the new additional spending he planned for the US economy. Trump said that he was willing to increase Government debt to fund it as one of the possible strategies. He further added that since interest rates are so low it would be wise to take advantage of the current low rate environment and borrow.

Bond Yields Reacting To Trump Plan

Now Trump will be the new US president I believe Government bond yields are surging not because growth will skyrocket in the US, but because they know that US debt under Trump will rise even faster than under Obama.

If Trump does plan to massively increase Government debt to pay for military and infrastructure spending, he is going to find out quickly that interest rates will not stay low for long.

Bond yields will continue to rise simply because bond investors will reprice US Government debt and the subsequent yield they will demand, to reflect the anticipated surge in debt coming over the next few years. The repricing of US Government bonds will occur to reflect the higher perceived risk of a potential default from considerably higher debt levels.

China Reacts To Trump Presidency

The Chinese Yuan / US dollar pair has been depreciating for while now, however the depreciation against the US dollar has accelerated recently. The currency pair is following closely with the US 10yr Govt bond yield since news of Trump's win was released to the world. (See chart below).

Since China is a large trading partner with the US and China holds a large portion of US Government bonds this is important, as the devaluation of the Yuan and its correlation to the 10 yr yield could indicate that China has accelerated its dumping of US Government bonds in reaction to Trump become President and the potential shift in Trump's trade policies effecting China.

China A Seller Of US Government Bonds

The chart below shows that China has been slowly selling US bonds since August 2015 reducing its holding from over $3 trillion to just below $2.8 trillion with the latest data.

If China decides to dump their holdings of US bonds rather than a gradual selling as has been the case, you could see US bond yields surging significantly higher due to the large amount China currently holds.

Once again given the high debt levels in the US this would create a lot of pain for the US, as US Government bond yields are used to price consumer, corporate, auto and housing loans. If the bond yields continue to rise it will squeeze the cash flow of debtors in the US and the economy will quickly feel the impact as the economy will buckle with higher interest rates. 

US Debt Obligations Impossible To Repay

A number that has been raised a few times recently during the lead up to the election results was the total US Government debt of around $20 trillion. However what vary rarely gets mentioned is all of the total obligations or promises that the US Government has made. These include the pension obligations, medicare, social security to name a few.

Ray Dalio from Bridgewater has put together a brilliant chart that encompasses all the Government IOU's as well private debt. (See chart below)

What you will notice is that on the right hand side of the chart that total US debt to GDP stands at over 1000% to GDP. This means that debt is over 10 times to the yearly GDP of the US economy and is too high for the economy to be able to effectively grow out of it. This explains why the US recovery has been so sluggish despite zero interest rates.

With such a high proportion of IOU's relative to the size of the US economy, you can clearly understand why higher bond yields will cause a lot of pain in the future for the US.

The previous chart above on the US IOU's is actually a global trend with many countries having a similar looking chart with Government and Private debt rising rapidly over the years.

When you take a look at the chart below on the left, you can understand why Central Banks around the world have struggled to lift rates over the last 5 years. The reason they have not been able to normalize is that debt levels globally are too high to sustain in any interest rate rise.

In fact over the last 18 months or so many Central Banks have cuts rates to further spur economic growth without much success.

Central Banks Stuck In Interest Rate Limbo

In previous economic cycles after Central Banks cut interest rates to stimulate the economy they were able to lift them higher as the economies expanded. However in 2016 the debt levels have grown so high relative to GDP just like the US, the global economy is no longer able to handle higher rates without crashing the Global economy.

As an example on the global debt problem, I recently wrote an article about the huge ballooning debt in China  and how its negatively effect the economy. See: Chinas debt bubble threatens global growth.

The only solution to the debt problem for the Central Banks (CB's) is QE liquidity injections to keep the status quo going. The chart below on the right shows the global equities market addiction to CB's liquidity, with a strong correlation to movements in liquidity.  What this shows is that stock markets follow CB's liquidity above the actual strength or weakness of economies.

We Have Reached Our Debt Limits

In September Ray Dalio outlined very simply that we have reached the Debt limits globally, and low rates and lower interest payments no longer work because the debt is too high to have any additional stimulus effect on growth. (See video below)

If you have not seen this short video before take a look to hear Ray explain the current problem the world is facing.

Higher Bond Yields To Cause Economic Pain

Therefore on the flip side if the debt is too high that low rates no longer cause an stimulus boost or economic impact, higher rates will negatively impact the US economy. This is because as higher rates ultimately reduce demand as higher interest payments take a higher share of disposable income and reduce overall spending power.

If overall spending demand is reduced in the economy this will lead into another recession or deeper economic crisis.

Considering the US economy is already weakening as recent economic indicators is signalling a slowing economy or even recession see: US economy continues to weaken.

Higher bond yields will therefore only tip the US economy faster into economic contraction.


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The US election results overnight stunned the mainstream media, wall street, world markets and millions of people around the globe. After initially falling sharply on the news, the markets eventually recovered and moved to finish higher as the mood turned from fear to bullishness.

Once the markets saw that Donald Trump moved to the lead early in the election results, the markets around the globe began to panic as the DOW futures was down over 800 points, the S&P 500 futures was down 5%, Gold jumped up over $50 and currencies moved violently as the odds turned to Trump becoming the new President.

Markets 180 Degree Reversal.

Once the S&P 500 futures fell by 5% the index automatically went to limit down, and temporarily stopped trading. Once trading resumed the S&P 500 futures began to slowly climb as the limit down measures meant the index could no longer fall more than the 5% level for the trading day.

Once the S&P 500 began to climb with the DOW, the massive fear that was gripping the markets slowly moved to cautioned optimism as the markets slowly crawled back the losses. By the time Trump was giving his President elect speech early in the morning US time, the DOW had recovered to be down 300 points. By the end of the trading day in the US with the results in for the new President the equity markets swung to a strong gain for the day.

S&P 500

The chart below shows that initially when the markets opened that the S&P 500 fell to the support level of 2125 before slowly climbing during the day for a big swing towards an up day closing at 2163.

Since momentum is now back into the positive and the S&P 500 closed above the 2157 resistance level the next target is 2190 which is back to it's all time highs for the broad US equity index.

US 10 Yr Govt Bond

One of the interesting swings in the markets overnight was in the bond markets. During the initial fear stages of the market the US 10 yr Govt bond yields fell all the way down to 1.70 level as investors moved into bonds bidding up bonds as the selling accelerated out of stock futures.

Like the equities market the bond market began to turn around and swing from a 1.70% yield on the 10 year to as high as 2.09% jumping by 20 basis points by the end of trade. Currently the 10 yr is sitting at 2.005 level.

The previous resistance level which is now support is around the 1.97/98 level, with the next resistance level for the US 10 yr Govt bond at 2.13%.

Lastly you can see that since June of this year that bond yields have been climbing since reaching the low 1.30's level and have broken its downtrend on a daily chart.

Crude Oil

Crude oil had a crazy day after having been down considerably to as low as $43 and change which was also a key support level, to a swing to the green rising to 45.25. Currently in the next day of trading crude is sitting at just over $45.

Crude is currently in a middle ground with no clear direction at the moment. Having said that crude recently broke its long term uptrend which is displayed on the chart by the blue line which is a bearish signal for crude moving forward.

The key areas to look out for in the medium term are $46.25 to the high side and $43.05 on the low side. We would need to see a break out in either direction to determine its next move.

USD/JPY

Currencies around the globe experienced violent moves overnight as the market tried to digest the news that many did not expect to occur within the US election.

The USD/JPY pair fell sharply initially to a low of 101.18, before climbing sharply during yesterday's trade to also climb into the green reaching a high 105.88.

The technical's for this pair has recently turned bullish, after reversing it's long term down trend and clearing the previous resistance level now turned support of 103.88.

Momentum has now moved positive and with the strong reversal intra day the next resistance level for the pair is 106.83. Currently it's sitting at 105.57 at the time of writing this.

EUR/USD

The EUR/USD pair had a similar outcome to the USD/JPY but in the opposite direction. After climbing strongly when news first came out that Trump was in the lead and looking likely to win the election. The EUR/USD pair jumped as high as the 1.13 level which also market the high end of the down trend level for this pair (see chart for trend line).

The currency also reversed course during the day and swung from a strong gain for the day giving up all the gains and falling for the day to reach a low of 1.090 level.

Momentum is only just positive and looks likely to swing back to the negative. The likely next stop for the EUR/USD is down to the next support level of 1.088 as shown in the chart below.

Gold

One thing that the gold bugs had expected was that if Trump would win that Gold would jumped sharply higher.

Unfortunately for Gold investors their prediction did not remain true as the trading day continued. Gold initially jumped spectacularly higher to a high of $1,336 for the day, before giving up practically all the gains to finish around $1,277 level.

Currently in the next day of trading Gold is slightly higher sitting at $1,286 at the time of writing.

Looking ahead for Gold it has 2 key levels to clear before it could regain it's uptrend. Its first resistance level is around the $1,305 - 08 level which it breached intra day but could not close above that level. If it clears this level the next level to close above is its downtrend line shown in the chart. During the highs reached Gold hit its downtrend at around $1,336.

XJO - Aussie Stock Market

Australia was one of the stock markets that was trading as the results were unfolding for the election yesterday. The Aussie market index the XJO was initially up in the morning when the market believed Clinton was winning. It quickly swung to the downside sharply following the US futures market, hitting a low of 5,052 which was around it's strong support level reached back in late June, before recovering considerably by the end of trade yesterday.

Today the XJO has risen sharply on the back of the swing in the US markets to around 5,300 level at the time of writing.

Since the XJO is currently sitting comfortably above its previous support level of 5,190, its next target is around 5,390 - 5395.

Keep in mind though that Momentum is still well in the negative at -142 as well as the current price is sitting below its 50 day moving average. The XJO would need to see buying to continue in the US markets to help lift the XJO out of its current slump.

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Election uncertainty and fears of a rate rise by the FED in December rattle the US markets as the S&P 500 and Dow Jones Index breaks key support lines.

It seems a shift in sentiment towards Trump over Clinton in the US election, due to the reopening of the Clinton email scandal investigation by the FBI has spooked the markets. To make things worse it seems the market is also convinced that a rate rise in December is going to ahead as the market is pricing a 75% probability. 

Too Much Uncertainty Breaks S&P 500.

Overnight the S&P 500 finally broke a key support line of 2125 (see chart) on increased  volume. Mild panic has begun to take hold as the market attempts to digest all the recent news with regards to the election. The break of support also confirms the recent reversal of the long term uptrend for the index  which occurred a few weeks ago (Circled on chart).

The S&P 500 closed at 2,111 yesterday with a 70 - 75 point  or 3.5% gap between the current price and the next support level on the daily chart. With rate rise odds rising and the US election still 4 trading days away, we could see the index under more pressure over the week.

Normally when stocks are under pressure and there is uncertainty in the markets, investors take refuge in bonds bidding the price up which brings rates down. Currently this is not the case as bond yields continue to rise in conjunction with the market probability of a rate rise in December moving higher (see chart below).

Will The FED Save The Market Again?

With the increased volatility in the markets it's very possible that Janet Yellen (FED chairperson) could deliver dovish comments in today's FED's committee meeting to try and soothe the market fears about a rate rise and spark a rally in the markets.

The Dow Jones index is showing a similar pattern to the S&P 500 index. You will notice before yesterday's price action to the downside the Dow Jones has been stuck within a tight sideways channel unsure which direction to go.

Considering that Dow Jones has made another attempt at breaking support on heavy volume after recently breaking it's long term uptrend (see boxed area in chart), could be the final confirmation of lower prices ahead for the index.

If break of support is to hold especially after today's FED committee meeting, expect the Dow's next support level to be around 17,130. Since the Dow Jones closed at 18,037 yesterday this is big gap to fill as there is 907 points gap between support levels. To be fair though there is a minor support level around 17,600 to first clear. However this is not a major support level for the index which is why I have not highlighted it within the chart.

The chart below show's simply what is probably causing the biggest grief for the US markets right now. The outcome of the election is now in jeopardy as the markets had previously priced in that Clinton was to win the election convincingly. Now the market isn't quite sure about the outcome.

The first of the red dotted lines was on last Friday when news was released to the market that James Comey the director of the FBI had reopened the investigation of Hillary Clinton and her emails scandal as fresh evidence was found compelling the FBI to take further action.

The news of the investigation caused panic in the markets on Friday (see chart), with further selling continued as new polls were released that Clinton was falling in the polls. While Trump has quickly jumped higher because of the latest scandal. Than more news was announced that additional evidence was found causing even more selling initially before recovering slightly.

The Nasdaq index below shows more resilience compared to the S&P 500 and the Dow with regards to its reaction to the uncertainty.

You can see that the Nasdaq is still holding support of 5125, after touching the support level during yesterday's trade, however recovered to close at 5153. If support is unable to be held over the next few days the next level of support is between 4965 - 4970.

The other interesting thing compared to the other index's reviewed is the fact that the Nasdaq is still within it's uptrend as the FANG (Facebook, Apple, Netflix, Google) stocks strong performance have kept the market strong relative to the other US indexes.

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Disclaimer: This post was for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.