Capitalsynthesis

None of us have a crystal ball but we do have technical analysis which on probability is proving once again a wonderful guide to short and medium term asset market direction. Levels wise we did indeed score the lower low across most risk markets and it did appear indeed to provide a wonderful trading entry for longs. Many levels across risk moved perfectly to the script. At least, thus far.

I realize there is a slight delay in posting this week so i give you the reports below but please do always have a quick look at the forum pages for updates on levels and trading entries, time allowing for posts.

Here the swiss team:

wklytech-17-2-16

Equities it played out perfectly. Oil has been deeper than I anticipated but i do believe the bottom is in. Precious metals perfect and again the bottom is in I believe in spite of whatever happens US$ wise.

Here GS:

gs-15-2-16

And here Fitzpatrick:

cb-wklytech-11-2-16

And here as an update:

CB-Wklytech2-12-2-16

And here a few jpegs from one of the world’s largest investments whose report i cannot post for legal reasons equity and risk recommendations and forecasts.

And here a few macro reports. We have passed a critical macro point where the single engine of America is starting to roll over. (Europe looks better but from a much lower point of course).

WF-negative

More to come on the macro side later.

And here MS with their excellent report on the FX weekly:

MS-fxtech

They raise some excellent questions here. Particularly the issue of “for how long” Euro Strong, Risk off correlation.

The eurusd trade is particularly complicated and you see here the divergence in forecasts between the majors. Im pretty even weight. Negative interest rates are broadening. Higher US$ rates are being pushed back. GBP has moved from 1st mover to higher rates to now likely another negative rate candidate. The SNB leads the way with -0.75% on the overnight. As the race to the bottom enters its new negative phase the ECB is near term losing its relative debasement race. If Draghi steps up in March perhaps it can regain the debasement edge propelling risk on a little harder. In this environment of aggressive competitive debasement in the face of poor economic performance precious metals shine out as the asset class of choice. The probability near term is for renewed euro weakness due to its carry trade status. No one is borrowing US$ any more and why would you. Just as equities are likely to score a lower high again the euro’s low should be a higher low as risk off suffers once again. Of course the central bankers can interfere with asset price directions and particularly carry trades but longer term the euro must be debased as the structural problems in the euro area demand this debasement to occur. 4 critical flags on ECB action are 1)Bundestag Court re OMT, 2) Bundesbank 3) Correlation between German economy and its euro neighbors 4) major German investment bank performance ie Deutschebank.

All the best for now.. so far so good but in a way this has been the easy bit. I hope all are prospering from the moves so far. Come April May things might become less easy to read. A buffer or margin for later in the year is likely to be needed for some false un predicted market moves.

Bullion wise the stage is now set for the secular bull to resume.

The historic comparison was always with the mid 1970s gold cyclical bear and dow cyclical bull within their respective secular bull and bear markets. The Dow Gold ratio moved from 3.06 to 9.47 or a factor x 3.10 in the mid 70s as gold fell and the Dow rose. On this correction in gold the ratio moved from 5.75 to 16.87 or a factor of  2.93. From 1974 to 1976 gold fell from 195$ to 102$ per ounce or a 48% decline. From 2011 to 2015 fell from 1895$ to 1070$ or a 44% decline.

From the 1976 lows for the gold price she rose nearly x8.5 to a peak of 850$ 3 years later.

If gold were to do a similar thing in the next few years this would give us a gold price of 9095$ per ounce.  10,000$ per ounce of gold seems a very probable target to me within 3 to 5 years. If this is correct it implies a lower Dow than her current levels as a gold dow ratio of approaching 1:1 seems not unreasonable.

Personally, thanks to our “wise” policy makers, i believe we will see considerable inflation (more than we saw in the 1970s) before this secular bull is don as debt levels are so much higher. So if compounded inflation ran at double the rate of the 1970s on a 1:1 ratio we would see gold price per ounce of 20,000$. Dow 20,000 within a 3 to 5 year time frame appears again, reasonable to me. In real terms, this would imply the Dow will be considerably lower than current levels.

Here Yardeni on the subject.. gold-yardeni-18-2-16

On many measures inc CPI adjusted gold is far from expensive right now.

All the best

Rich

The negative sentiment high momentum failure of Xmas rally has continued so that we are now at some key levels across many asset markets inc currencies and commodities and equities. Momentum is sufficiently strong and leverage has been sufficiently high that stop hunting can certainly occur here but we are over extended and sentiment is at wash out levels so that any unexpected good news would lead to a rapid reversal of recent price action although the V shaped reversal to higher highs is unlikely. We need to reestablish some price supports and get a sustained big again under this market so that the pattern that emerges is unlikely to be a V unless the news and policy makers come out uber strongly.

Here GS:

gs-tech

GS calling out the 1885 level for stops but a possible move down to 1849 or so without signifying more than a correction for equities. Eurostoxx 50 29230 (we hit 29230 on Friday).

And here CS

CS-tech

And here Fitzpatrick’s latest with some soothing words of  “its just a normal post fed rate hike correction” :

citi-tech

We bounced off the 1867 level on Friday but given the weakness of the bounce we probably need to test her again!

And LC

LCM16-1

And here for now MS on their fx strat:

ms-fx

Almost the entire pack staying long US$. Until that consensus is blown over buy data disappointment, expect weakness in Gold.

I have some more reports to add to this note in the coming days.

I also want to make participants aware that the Swiss Team are on a break until the 26th of Jan. I seem to remember they often take a break post their annual outlook documents.

All the best

Rich

 

Welcome to the first post for the 2016 year and I can’t remember starting a year to so much volatility and uncertainty.

There is so much to comment on inside the following outlook but this to come. Without delay I want to bring you the technical “Swiss teams” outlook for 2016 and beyond which is a master piece in technical analysis.

As a general observation regarding these technical commentaries, as we look back on 2015, we can see the works of Goldmans, CitiBank and UB have generally been ahead of price and this therefore deserves much praise.

Implementation within your trading own trading plan is of course as complicated sometimes as is the production the technical insights themselves but this application can only be our challenge and given time and decent record keeping becomes clearer.

This, by the way, is the forth anniversary year for Capitalsynthesis. As I look down the list of subscribers it appears to be an industry whos who list. It is mainly a professional subscribers list nowadays.

Back to 2016 it appears likely to be a pivotal year for world markets. I echo the team’s view that we have a situation here and threat of a “meltdown scenario” vs their base case. Looking ahead to further weakness it is very likely that in the year ahead it is likely that many world equity indexes will hit the same levels were at back in 1996. Policy makers need to take heed of this weakness as do the proponents of perpetual house price gains vs all other asset classes.

Without further delay here the 2016 Technical Outlook:

2016 Outlook

And here a comment a few days ago from Fitzpatrick:

mondaytech

And finally it appears the gold bull is in 2016 about to resume. Its worth noting that this bear market is almost exactly the equal (value wise) to the falls gold saw during her 194 to 1976 bear market within her giant bull market. Duration, time wise, has been longer but really only in US$ is this the case.

Here Nautilus’s 2016 Technical Outlook

Nautilus 2016 Market Outlook

Here a technical update from the guys at Goldmans in a pre xmas released 2015 retrospective & 2016 outlook:

gs-2016

I would note the views on the flat yield curve. Often a pre cursor of bear markets. I would also note the optimism, which was consensus, for an out performance Euro Stoxx. Remember from failed moves come fast moves, as we see! Note also the ten year target of 2.09%. That is far from consensus or at least was a week ago but a forecast i totally agree with which feeds directly into the commercial property reits borrowing costs and therefore supports a higher valuation than at present. Note also the breakout USD vs SGD, which wedge wise is confirmed and horizontal breakout just about confirmed.  Place this in the context of the Swiss comments re “Where We could Be Wrong” and the para..

“The obvious trigger on the macro side for an earlier market break down scenario would be a new broad based breakout of the US dollar against the Asian/EM block and also versus the commodity block”.

These recent price moves are hugely concerning on the near term for equities, commodities alike. We need to see the US$ back away from these potential breakouts. If we don’t we have immediate deflationary trouble ahead in an already very weak technical market.

Much more to come and I’ll update this post later today I hope. Looking forward to the 2016 year ahead.

All the best guys.

Rich