Its that time of the week again for the Swiss team’s usual technical run through. What is evident across the technical community is that almost all technical commentators starting to forecast weakness across equity markets. The Swiss team remain fairly bullish on the medium term but are forecasting a near term set back. AG are sticking to their bearish guns and Goldman’s have withdrawn their bearish positions and bearish conviction on gold. They do remain high conviction euro bears as does Fitzpatrick though his jpy shorts are looking very dangerous here in spite of the nik225 strength.
For my own book i remain a nq bear but general equity market bull, for now. Having said this my net exposure is the lowest its been since end q3 last year. My exposure to commodities has risen as my conviction has increased but I do still expect some weakness in a short term correlation move with equities. In the medium and longer term i expect commodities to out perform general equities with the underlying commodities out performing their producers as end user volume demand may be light relative to the monetary driven paper trading demand for these asset classes. FX wise the gbp has been an overweight vs the euro for some time across my book alongside a defensive high yield uk equity set of positions. Its been an excellent trade given I measure my book in euros. The macro trade may be soon coming to an end so some contrarian consideration of strategy will be needed very soon. (GBPNOK is at new extremes but has momentum which, given the above comments on commodities out performance and the “stretch”, makes me take note).
On trading practice its also worth making one clear point here about this narrow highly concentrated current market.
As a couple of examples, across the sp500 10 stocks out of the 500 make 42% of the net margin income of the entire 500 company index.
http://www.zerohedge.com/news/2013-02-18/these-10-stocks-account-over-20-sp-500s-market-cap
The very same dynamic is true for the nas100. The largest 3 stocks in the nas100 make up nearly 25% of the index cap value! The top 10 40%. I realize this is not the place to discuss why this sort of market dynamic is occurring here but this sort of data should certainly be feeding into all our practice on a strategic and tactical level. In my own view.
Accepting the above here a chart on the entire sp500 and its very clear weakening breadth situation. The health of the nasdaq100 is dependent now almost entirely on a hand full of large cap momentum stocks. The risks are very clear.
Without more delay here the Swiss team’s report:
And here AG:
And here GS:
Much more to come.
All the best
Rich