Its Tuesday evening so time to review where we are here across the international asset markets.
The recovery in stock prices has been near vertical. Momentum is finally fading and breadth on each new high is producing divergences on the near term. Sentiment via AAII as well as the put call ratios suggests extreme bullishness with AAII sentiment at her 9 year highs. Europe is diverging badly from world markets and the commodities have been badly hit by the US$ strength.The same price issues of defensive asset classes performing well alongside strength in equity cyclical risk sectors remains in place and are unresolved from a trend perspective.
Looking at some of the specific the detail we have clear divergences between asset classes that might be an early signal of an impending technical trend change. Oil and gold scored lower lows as the US$ scored her higher high and the wider commodity index has been showing signs of a base with a break down in her inverse correlation to the dollar basket. Copper, from the metals has a strong base at the 3$ mark and like the commodity index has positive divergence. Oil and gold have suffered from ultra bearish sentiment so the snap back in the dollar is to pull back a little could be sharp.
Here four charts together providing a good illustration of the CRB’s positive divergence to the dollar basket.
Here the scotia on the latest cftc report with a focus on FX.
Here the scotia on the latest DB report with a focus on commodities.
Note the large accumulated short positions on copper. No metal is more shorted than copper at present and yet the support level has held and she shows positive divergence to her primary correlated instrument, namely the us$. Additionally near term volatility is low so the door is open to an asymmetric trade long.
We can see the obvious that accumulated US$ positions have reached their highest net long position since the credit crisis of 2008. The price move is extended but it has momentum and shows no obvious signs of a turn yet. If the CRB index is the lead there are indications that, at the least, positions need to be re-weighted and this would be meaningful for commodity currencies particularly the AUD where the cftc shows uber bearish net positions.
As regards to bullion whatever happens here as regards to a commodity bounce the window remains open to taking an asymmetric trade in the commodities. Copper has extremely low volatility on the near term. Directional options are relatively cheap at present for those up to speed on these instruments.
I’ll leave the multi asset detail to Swiss team here:
And here Fitzpatrick the tech guru at Citi
And here ISI
And on the fx tech MS
I will provide an update to this report tomorrow.
Rich