Obama Effect-Revisited

Over the weekend we surmised the likelihood of a feel-good, relief-rally away from the anti-risk trade, and driven by the market catalyst called “perception of change.”

And…market participants appear to be reacting on cue.

As a trader, it’s always necessary to anticipate several steps ahead– to examine the current landscape for information on how the pieces might become a puzzle.

In our weekend piece, we had supportive evidence of vulnerable chart set-ups that suggested key markets that are core to the anti-risk trade, were all vulnerable to technical reversals. We were looking for a shift in sentiment and saw a likely catalyst in the new incoming US administration.

Here’s how it is playing out:

30-year bond futures: Vulnerability= Lower
We showed you a chart of the 30-year bonds– vulnerable to a technical breakdown of the 3-month trend higher on the back of safe-haven buying and Fed activity. When Monday trading opened on globex this trendline gave way. Look for a continuation of this corrective C wave to shoot for the 125 area.

Crude Oil: Vulnerability= Higher

Next we showed you a chart of crude oil. Crude, driven down 78% from its 2007 highs, was trading into a 11- year line of support and was forming a double bottom from the December lows. The chart has since put in a bullish outside range, a key reversal signal. If our feel-good, risk-embracing rally scenario holds, look for this descending trendline to break. Also, directly related to both risk appetite and stronger oil prices, the Mexican peso has met its 45% decline over the past six months with a triple top at the 14.30 level. As we mentioned in our weekend piece, with the dynamics in place for a “relief to all that is considered risky”, selling USD/MXN sets up nicely for a low risk/high reward trade with a stop above the highs.

and USD/MXN…

Commodities: Vulnerability= Higher
Finally, while a broad commodities retracement we pointed to is slower to become engaged, the wheels appear to be turning.