Evening gents and apologies for missing last week’s report point.
All assets markets have a positive tail wind here with dovish comments from the several of the major central banks and what appears to be the last gasps of a renewal of the “bad news is good” theme of the last decade. Lead indicators like the 10/2 treasury spread are narrowing once again and equity tech indicators like breadth and momentum are flashing negative divergences within a 4 month cycle for indexes like the sp500. Therefore the early February breakout in the SP500 continues to be a likely impulsive wave five extension/overshooting triggered by central bank dovishness instead of a new broad-based cyclical breakout campaign.
US risk:
Last week’s breakout of the SP500 has a new trading key support cash at 2739 (February 5th high). As long as this holds, there is further possible overshooting towards 2800. However, with heading into another minor top projection the conviction trade is for the SP500 to start a pullback this week with a re-break below 2739 to send the first confirmed trading setup short signal since the December lows. This would signal the breakout of the 200-day moving average would have been a classic bull-trap.
From a cyclical US risk perspective, the December rally has been significantly extending, so that the tactical trading bottom will shift more into deeper March as the setup for starting its next bounce leg into early summer.
So tactically we were a little too early too cautious. Therefore this bullish (wave B) market bias is likely to extend into early summer19 making it increasingly likely to see the SPX re-testing its 2018 all-time high.
European Risk:
Europe is on the way into a 4-month cycle peak from which likely to retracing 38% to 50% of the December rally
into deep March. Nonetheless European risk is likely to form a higher trading bottom for more strength into
early summer. And on the back of expecting a weaker EUR its possible for a temporary surprise on the upside with
Europe a tactical outperformer of the US. Trading key support is at 3216 Eurostoxx50. Into March, a pull back towards 3118 to worst case 3078, is buying territory for another rally into early summer.
FX
US$ is taking its consolidating within an underlying bullish USD
context (support 95.00 in the DXY) and the Asian/EM dollar index testing its October downtrend. US$ strength. A break of the October downtrend in Asian/EM USD would imply that major breakout pattern set-ups in KRW, TWD and SGD are in motion, which will provide the backdrop for significant trend moves and higher cross asset volatility in Q2 and in H2.
EM Risk:
A major US$ breakout across the Asian/EM FX block would be a major tactical game changer for Asian markets, where there is increasing selectivity and fading relative momentum. The big outperformer in the region is currently China outperforming, but where in the Shanghai Composite we saw a massive volume spike, which suggests exhaustive buying climax, and is therefore a contrarian sell set-up.
Precious Metals
In gold, as long as the yellow metal trades above $1300 another bounce here and a new reaction high but which is likely to be the final wave overshooting before expecting a more significant pullback into Q2 to work off its medium-term overbought stance. On the upside $1360 remains a potential target zone, whereas a pullback into Q2 should not go below $1260 before starting its next rally/bounce into later H2.
Crypto BTC
Tactically BTC has had some positive price moves in the last week with short term momentum price indicators like the cci coming back to life in the instrument. Today we scored a move back above the instrument’s 50 day moving average and with positive confirmation from price momentum indicators in the 4hr chart. Although yet to be confirmed in the daily. 200 day moving average at 5000 US$ the conviction next tactical target area. Individual stock wise GLXY (Galaxy Digital Holdings, Novogratz’s closely held listed enterprise) adding 20% on today’s move. (For disclosure I do have an interest in the stock).
More to come
All the best
Rich