Guys, i post below a quick tactical update here given the step change in volatility from the recent market movements.
US Risk
SP500 and Technology have both over shot and reached record overbought territory on their weekly and daily
time frames. With sentiment at contrarian levels and the SP500 reaching 3350, risk markets have moved to a late January tactical top formation for a likely 4% to 5% retrace into initially early February and later into Q1 before risk resuming its bull trend into summer.
Friday’s reversal in risk mkts effectively means risk topped on January 22nd with short signals in fading momentum and significant price reversals in Russell2000 & cyclical key sectors provided the confirmation that a 2-month cycle peak is likely in place. 3212 in the SP500 cash and where the Nasdaq100 should sell-off towards 9035 to worst case 8900. With initial spikes in our fear indicators, and some oversold cyclical sectors (tactical negative surprise in commodities) signals buying territory for selective cyclical sectors. Not yet in technology which needs longer to work off its near term record over bought levels.
Cycles wise, august 2019 represents a major risk bottom where global yields and cyclical sectors based and where we see the USD reversal and Q4 USD sell-off as the move into a new reflation cycle.
Strategically, the December 2018 low was the start of a major wave V bull pattern, where the August low was the base of an impulsive minor wave 3 (of V), which usually marks the momentum/breadth peak of the whole bull cycle. Tactically, minor wave 3 topping in late January for a corrective pullback into later Q1 before the minor wave 5 starts into summer.
We see classic bubble phenomena in technology/quality growth and renewables, which fits the late stages of a major bull market but where without any divergences in momentum and breadth indicators this remains underlying bullish with target 3600 for a major wave V top.
European Markets:
Whereas the US market overshot into first half January, there was deteriorating momentum signs of
distribution again in European risk, where in the Stoxx-600 we saw the breakout to a marginal new all-time high but with the DAX, Euro Stoxx, FTSE MIB and FTSE-100 facing strong price resistances. With last weeks price moves the Euro Stoxx has broken its trading support at 3745 and is testing its tactical support at 3690. A break would open the door towards 3605. On the sector front, pullbacks in cyclicals, in construction, industry, chemicals, basic resource, travel and financials with autos and energy clearly undershooting but where the negative surprises are likely oversold buying opportunity early February.
EM& Commodities
With investor fears spiking on the coronavirus in China there are significant sell-offs in economy sensitive commodities and everything which is China related. The sell-off last week was selectively stronger than expected (copper, crude oil) but so far price moves do not contradict the core case of an intact mini reflation cycle that we expect to get traction into summer and into H1 2021.
Gold
Gold trades in minor wave 5, where as long as we do not see a re-break below $1543, it remains trading bullish and where a break of $1590 would suggest a wave 5 overshooting towards $1624 and best case $1720.
USD
The US$ is bouncing versus high beta fx but with being overbought against Asia/EM and the commodity block the USD as a trading sell into early February. Commodities/China are selling off but where crude oil (lost more than 20% in 3 weeks) is a buying opportunity into early February and where a volatility spike in the China EFT implies the worst is over in China.
US Treasuries
US 10-Year Treasury Yields are heading into key support at 1.56%, where a break would imply a re-test of the late August low but on the back of our initial early February low projection for risk markets yields are likely in a larger basing process and bounce candidates instead of seeing the risk of a major breakdown or undershooting.
A big night tonight for Tech earnings. Lets see.
Rich