Reading the Market’s Tea Leaves (a.k.a. “Charteography”)

Puer.

Hojicha.

Lapsang Souchong.

Those are my go-to teas. I’m always and everywhere a fan of green tea. I’m especially fond of Hojicha right now because it has a bit of a toasted smokiness to it. (It’s great for South Florida’s frigid winter when temps drop below 70 degrees Fahrenheit.)

That’s also why I’m a fan of Lapsang Souchong, a black tea that’s like drinking in a campfire!

Puer is newer to me, but it’s easily the best all-around black tea I’ve tried. It has the health benefits of green and rooibos teas yet it can brew and brew to a deep bold flavor without going bitter. It has a very distinct taste, but once you’re hooked you’re hooked.

If you are a tea drinker like I am, you’ve probably discovered loose leaf teas. This just means the tea doesn’t come prepacked in those neat little tea bags for steeping.

And, you’ve probably made a mess disposing of those loose tea leaves.

Nevertheless, we tea drinkers persevere because we know that the tea leaves bring good things, not to mention the perfect segue …

Tasseography

Wikipedia taught me a new word: Tasseography.

Tasseography is a divination or fortune-telling method that interprets patterns in tea leaves, coffee grounds, or wine sediments.

Now, I can’t say I’m the perfect fortune teller since I don’t drink coffee. But I do my best at interpreting patterns in other things — like the markets.

Let’s call it charteography. (Yeah, I just taught Wikipedia a new word!)

Without further ado, here is my charteography on some key markets …

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Crude Oil

There is an alternate path, but it seems like the likeliest scenario is for oil to rise to $60+ in the first quarter of 2017. After that, barring no major change to fundamentals, the tide could turn quickly and violently.

Gold

The U.S. dollar and interest rate expectations have been a weight around gold’s neck. It is at a level where I think support is in play; and where I think support must be in play if gold is going to regain the upside momentum it had to start the year. If gold holds now, I can make the case for $1,450 in the first half of 2017.

Bonds

Again, interest rate expectations are the name of the game. Bonds have taken a major hit as investors push yields higher on the idea that economic data warrants another Federal Reserve rate hike — or the resumption of their path to normalization. I say ‘not so fast.’ I think bonds are due for a rebound.

S&P 500

A price pattern from decades ago makes me want to bet the S&P 500 will continue to replicate that pattern by falling sharply between now and the end of 1Q17. I have been watching for that outcome during the second half of this year, but so far it has not come to pass. Ultimately, it looks as though the S&P could gain as much as 17% from current levels in the next 12+ months.

Emerging Markets

In the near-term, emerging market could go two ways: either 1) extend higher in a fifth wave [E] or 2) continue lower in a larger third wave. Either way, though, it looks like the longer-term view for emerging markets is down. And the thought that capital might continue to be drawn to the U.S. seems to validate that expectation.

Euro

The U.S. dollar has been strong across the board. And it looks due for a rest. That’s part of the reason why I expect the euro to rally in the near-term. The other part is the narrowing chart pattern that suggests support is in place and a fifth wave is needed before the euro falls significantly further — certainly to parity if not lower. To be sure, a fifth wave doesn’t need to happen for the pattern to be complete — if support breaks here the euro’s fall could stretch a good distance lower.

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Now You Know

And now I’m off to brew a cup of Hojicha.

Do right,

JR

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“JR” specializes in trading commodities, currencies and options. He has spent nearly 10 years analyzing financial markets and writing about global economics. JR honed his trading techniques and global-macro worldview alongside his father, Jack Crooks, at Black Swan Capital. JR also …