We have a very divided set of views this week from the various technical teams.
Searching for consensus among the teams is that this recent bullish reversal will likely run out of steam very soon so certainly chasing or evening covering shorts at this precise point in the market appears a dumb thing to me. And i say that as a short holder. There is certainly a significant short squeeze under way but is this the end of the correction I’m not convinced though the Swiss team are certainly pointing that way.
The evidence they point to is the wash out level of bearishness in sentiment and put call ratios. The bullish reversal patterns especially in the key cyclical sectors (although off lower lows in the main note). And also the absence of lower lows in the commodity currencies and commodities. The US$ top is in for the Swiss team. Certainly from a global growth perspective a weakening us$ is usually bullish for global gdp and US$ leverage.
We have witnessed a lot of V shaped price recoveries in recent years and possibly this double bottom provides enough price evidence for the lows but given the momentum of the sell off, the weakening momentum of the test of the supports and the momentum of the reversal this all looks very classic price action to me of a market on volatility fire. Market breadth in terms of new 52 week lows was significantly lighter even on sectors and indexs that achieved a lower low so the price reversal trap was set and fairly clear. We have a stop hunting reversal in motion and until key levels are tested and proven little more, for my mind, so far. In my opinion is premature to call an end to the correction.
Do we have clarity on currencies yet from the US$ to the JPY? No, not yet. The euro has not weakened considerably here and neither has the Japanese yen. These price books are thin there is little evidence that participants are really adding specific currency leverage again here to buy.
Without more delay here the Swiss team:
And here Fitzpatrick taking a more bearish line in respect of equities but not sharing the bullish commodities theme.
And here
And here Citi on FX
And here scotia on fx
And here Yardeni
Its still early days in terms of the equity reversal or not. I need before altering stance though the European reversal has been impressive thus far.
Rich