Its Tuesday so time for the Swiss team’s regular technical weekly analysis of the major asset markets.
Market breadth improved on last week’s breakout but on a longer term basis remains weak. Sentiment has been reaching extreme levels on the AAII and the put call ratio. Whilst a few weeks ago there did appear a reasonable probability of price running on that probability gets smaller the higher she goes as the move’s breadth/internals narrow. Inter market we can see the cheer leading sectors like the SOX, Heathcare, Oil and Gas & Utilities are heavily over bought, have price momentum divergence and are at price trend extremes. They are due a pull back and given the distance to their 200dma’s it could be quite a severe pull back and a leap in volatility and volume which opens the door perfectly to medium term asymmetric trade positions.
The team pick up on the euro, sterling, aud & the precious metals. The detail i’ll leave to the tea but suffice to say the commodities per se are attracting a bid here and cyclically speaking this fits perfectly with tired equity bull theme.
Its also worth repeating that, course, price can diverge for long periods from their long term mean averages but eventually they always do reset and the further away from their long term mean average with weakening momentum and breadth the greater the probability for a sell off becomes. We operate in a game purely of probabilities and for our p&l’s that’s just fine as this is enough!
For my own book I’ve been a seller today into strength in the oil and gas sector. (Its been a wonderful ride). Healthcare and also diluting some reit holdings. The probability of equity price weakness grows. Most stocks have paid their annual dividend so the rational of holding over the summer a large allocation of stocks, given the technical problems is unconvincing.
Profits over the last 18 months have been stellar but the issue, as always in this game, is what next? and how this equity topping out phase will play out exactly. Will it be a low volatility equity consolidation, in a replay of periods of the 70s, or will it be explosive to the downside to enable more ‘policy action’ to fuel the monetary commodity super bull? (Note China has been using the copper price weakness to warehouse considerable stocks of copper. The LME stores, as one example, have sufficient for 3 days of global supply). We cannot know yet how this will all play out, nor do we need to. We must take what is given to us indicators and price will show the way.
Index wise the nasdaq100, until today, has struggled but today, thus far she has found some momentum. In terms of probability she remains a sell and i maintain my short hedging allocation to the sector. Ive been increasing options and fully funded precious metal allocations and picked up, off a very low level, my allocation to industrial metals especially copper and platinum producers due to the latest price moves and inflation data points
Here then the usual report but also please find the AG report from Friday below as well as a number of excellent reports from CS, DB,Barcap, ML and more. Commodities are regaining some focus.
And here AG with their technical run through:
And here Commerz with various tech views:
And here Commerz on the commodities:
And here the CS core perspectives
And here the CS on FX:
And here a couple of excellent commodity reports from CS:
And here a great ML h2 view:
And here an ml allocations report:
And here DB with an FX view:
And here JP with their FX take:
And here Barcap with their technical view:
I strongly suspect h2 2014 could see a leap in volatility. One way or another asset price and correlation means need to revert. Usually, from such an equity price height, it happens quickly! And gold the inverse i suggest.
Lets see. All the best
Rich