Capitalsynthesis

Euro asset markets have bounced off some key technical levels (especially euro equity indexes) which has been important to at least halt this recent weakness. US indexes like the dow and sp500 have made new record highs, albeit with low momentum thus far. Technical issues remain of course like breath divergences as well as lead index lack of confirmation and weakness ed Dow transports.(See Fitzpatrick’s comments on this below).

Here a chart of the sp500 inc 52wk highs of individual stocks. Its weak and the problems are increasing in terms of tech divergences.

Euro rates have subsided a little (Spain 10yr back down to 1.75% from 1.9% a week or so ago) given some timely and soothing comments from the ECB. FX wise the US$ is bouncing, as expected. The euro must remain weak given the front loading ecb qe action as well as the persistent Greek issues. As less than 2% of the euro economy the greek issue is by many pulling the euro down by as much as -5%.  A mis price given how non systemic Greece now is to the eurozone? I don’t know but on news of a grexit, although the initial move will be bearish a short and sharp reversal may soon follow. I hold, now in money, option puts with a strike at 1.125 expiry early june to capture the asymetric trade opportunity a grexit presents.

Overall expect a weak continuation of this bull market, for now.

Beyond a near term technical continuation, its hard at a macro level to see where new buying momentum can come from to provoke a new leg to this tried bull market. Much of the last 35 years of dm economic performance has been achieved via domestic housing bull markets. Its no accident that the best performing DM economy is the uk where house prices continue to be the alpha asset class. Strong housing equals strong consumer demand and ms growth. Unfortunately the US housing market remains weak.

And money velocity is hitting new lows in spite of the zirp strategy employed by our policy makers.

Back to the tech the Swiss team are taking a well deserved holiday this week so a shorter list than usual this week.

First up Fitzpatrick from the end of last week:

cb-wklytech-15-5-15

And here with a supplementary on the dow transports issue:

CB-DowT-15-5-15

And here GS with their tech charts:

GS-Tech-17-5-15

Note GS are now down one single cross asset market trade and that is long euro stoxx50. That’s the first time i can recall GS down to one high conviction trade. Telling in itself.

Here a very useful, if you can take the time, report from Commerz, cross asset market correlations, performances and fund flows.

Commerz-CAM-18-5-15

And here Cs with their tech chart pack:

cs-techcharts-16-5-15

Here MS with the excellent FX report. I have to say I have exactly the same stance re so many of the trades and levels contained in this report, if that’s of any note.

MS-FXtech-17-5-15

More coming in the next few hours..

Here RBC and Commerz on the macro:

RB-Macro-17-5-15

commerz-macro-17-5-15

And here Yardeni. The divergences between the Sp500 and economic performances are worryingly large.

yardeni-tech-19-5-15

Here Facset with yet more divergences. This time between equity prices and the dismal earnings which are equal or lower than last year non share adjusted:

Earnings-8-5-15

As a final comment, NYSE leverage levels have broken out again after a plateau and investor sentiment via the AAII survey is very neutral at present. Optimism set a new 2-yr low for the 2nd week running in the latest AAII Sentiment Survey. Neutral sentiment stayed above 45% for the 6th consecutive week, tying a 27-yr record, while pessimism declined slightly. Indecision and neutrality is generally a very good environment for a continuation of the prevailing trend.

Rich

2015 was always going to be a volatile year. US markets have stalled in terms of momentum and selectivity is rising but I agree with the Swiss team that, for now the bull trend is holding and certainly above 2077 sp500 the trend remains our friend and is higher. Europe’s sell off is entering an official “correction” territory. Indexes like the ibex35 need to turn urgently here and now or else this will attract more sellers and the move will gain even more momentum. The level around here 11200 or so on the ibex needs to hold. The next few days could see an intra day test of the 11,000 level and for price traders we want to ideally see a strong rejection off this level to believe higher prices are coming.

I am travelling at present and its the time of the year for moving boats from winter to summer moorings. Nonetheless tomorrow ill update this with the comprehensive list of reports from the usual quarters. Personal comment may be limited due to the time constraints but i am watching this and am at a moderately high level of concern here. I strongly suspect we will get a strong bounce here in the coming days and weeks but this bull tired and vulnerable. Risks to asset markets are rising here.

Here the swiss teams latest:

wklytech-5-5-15

And here a big shift for GS:

gs-02-5-15

Still a conviction 3 on eurostoxx50 but note the gbpusd short has turned neutral from a conviction 3. That implies a big disappoint for gs and position covering. It was indeed a hard and fast move up to the 1.55 area. Aud shorts remains and aided over night yesterday of course.

Here Fitzpatrick:

cs-wklytech-1-5-15

Fitzpatrick is right to be worried by rising rates. I notice spanish yields have nearly doubled in the last month from 1% on the ten year to 1.8% today. And whats worse alongside an equity sell off which is very strange indeed. Should we be surprised by peculiar price movement such as these?

No. Central banks have made down up and up down with their manipulations. They have made professional risk management almost impossible which given record high levels of nyse leverage etc is a dangerous mix indeed. I suppose they feel they can always bail out the system by quantitatively adjusting the money supply if another black swan emerges. They assume a level of invincibility now of course which is very dangerous indeed of course but this is where we are.

More to come.

Rich

Volatility has continued with all asset markets continuing to show large movements again in the last week. Currency markets have traded very well with very clear price signals. For my own book its been an exceptionally strong week for FX and with euro equities remaining strong and the IBEX35 breaking out strongly.

I going to update this report tomorrow am but until then i release the usual trio of reports with the remainder and  comments tomorrow.

Here the Swiss team’s latest:

wklytech-24-3-15

The gold comments particularly meaningful. The ftse100 secular bull market, yes, though much relies on the pound being debased.

Here Fitzpatrick’s bubble warning latest:

cb-bubbles-21-3-15

Correct. The central banks are working hard to ensure this is a historic asset price bubble.

Here note the UST (ten year treasury’s yield is back down to 1.88% post Yellen. US Mortgage rates are tumbling again providing more stimulus to the US economy. A personal comment would be to watch the 5yr rates vs the 10yr rates. No one in the market is really believing rates can go higher for very long. When Yellen finally moves to raise rates it almost guaranteed that the US yield curve will invert with all the issues that this will create.

Here GS’s usual tech report:

gs-tech-21-3-15

Of the conviction trades (aside from the USD vs most long running positions) they maintain their eurostoxx50 conviction 3 long.

Here below the continuation of the release.

First up the outstanding regular chart pack release from CS:

cs-techchartswkly-21-3-15

They are maintain their caution on most asset markets here inc equities, commodities, bonds & bullion. Note, a clean sweep across the asset classes near term. Even the US$, which they remain bullish on has few entries at this near term point. I’ve not seen a more neutral to bearish report from the guys for some time. Looks like CS traders are going to have a relaxing week.

And here a timely report from JP covering earnings projection changes:

JP-EarningsFC-23-3-15

When you look through the tables as to how earning projections have been revised downwards, once again, its hard to be convinced as the longevity of the current price trends. (Also worth noting earnings have consistently disappointed for every year I can recall of this ‘recovery’ secular bull market).

To repeat and reemphasize the JP report above here Yardeni with his latest earnings report:

Yardeni-earnings-25-3-15

Unless we are the verge of some renaissance in earnings this cyclical bull market is within months or her end. Even earnings per share (ie inc huge share buy backs) are negative year on year according to the latest forecasts.

Next up on the technical front (and with a similar bearish looking set of indicators) Yardeni’s technical indicator latest:

yardeni-tech-25-3-15

And on the macro front first up CS:

rbc-macro-23-3-15

Note the correlations page. Bullion is puzzling for market timers. She is not showing much in the way of a high level of correlation to anything right now. The highest degree of correlation is to the UST, inversely on the monthly and quarterly. Interestingly the inverse correlation is double the ratio to the US$ relationship which is at a historically weak 0.3. This can be explained by the rest of the world easing rates more quickly than the rate at which the Fed is disappointing. World growth is slipping and rate rises look further away than ever in truth.

And here ML on the macro:

 ML-GlobalMacro-15-3-15

And here more from ML on the macro:

ML-Macro-13-3-15

Here ML with a special report on the preferreds market, which has been great investment for those with an entry a few years ago.

ML-preferreds-13-3-15

And here ML with their equity analysis, sectors and picks:

ML-equities-11-3-15

Note “sp500 is close to our year end target and earnings growth is slowing down”. Correct, as above.

And here an equity view across the smaller cap components from ML.

ML-USequitySME-15-3-15

Fitting the tech with the macro its very easy to understand why the smaller cap sp600 and Russel have performed so well recently. Simply put the world economy is struggling with negative surprises month on month. The US$ has risen dramatically and this is making earnings for large cap US dow and SP500 components reduce in dollar terms. The small caps do not have this fx earnings exposure so they are lagging the worsening global picture.

And here a trio of CS macro reports before we turn to the fx markets:

cs-globalmacro-21-3-15

And here CS on the US macro

cs-usmacro-21-3-15

And here CS on the Euro economy

cs-macroeurope-21-3-15

Next up a multitude of FX related reports and comment as a v3 release, later today.

But to kick us off here MS’s regular outstanding FX weekly report:

MS-FXwkly-23-3-15

Q1 2015 note 1.12 now the forecast eurusd. GBP 1.38 by year end.

And note, “over recent weeks, we have reduced our USD exposure“.

GBP – “Selling on Rebounds”.

I would add almost no political risk is priced into the GBP at present.

And here CS on FX:

CS-FXwkly-19-3-15

Here CS on a trade fx rec:

CS-fxtrade-21-3-15

Here next commerce with a great fx run through

Commerz-fxtechwkly-19-3-15

And here the outstanding and widely publicized call by HSBC for the end of the US$ bull run. I was myself in that trade, without having read this report. But here she is:

HSB-FXwkly-20-3-15

And here the latest cftc report care of Scotia.

cftc-21-3-15

It was all there.I quote:

“EUR bearish sentiment has built for a second week on the combined impact of freshly built shorts
and fading longs, a shift that left investors highly vulnerable to the subsequent turn in spot”.

The build up in long US$ positions ahead of Yellen and raised bearish euro positions. Finally the sterling shorters were stacking up for a continuation of the attack on sterling. When market participants saw weakness it attracted more weakness.

I hope all are making good returns here. So far its been a great year for active traders.

All the best

Rich

Its the time of the week for another technical run through the major world asset markets.

As so often is the case much seems to rest on the decision of the world’s central bankers. The Eurusd is very extended and is affecting all asset markets. Nonetheless, it seems any manner of technical setup can be over ridden by monetary debasement maneuvers and even central bank jaw boning, for the moment.

Lets start with the Swiss team’s cross market technical run through:

wklytech-17-3-15

Note their spx levels comment for the coming days and weeks. Tomorrow is Fed day and Yellen has a decision to make. If she opts to tighten monetary policy it could threaten the 1972 level surprisingly quickly. Lets see. It will also greatly affect the US$ and therefore commodities, bullion and of course rates, particularly the 5 yr and Fitzpatrick covers below.

“As long as the SPX trades above 1972, the underlying bull trend in the US remains intact”.

Here Fitzpatrick:

CB-wklytech-15-3-15

And here GS:

gs-15-3-15

Its always a good practice to run through GS’s high conviction trades. We can see shorts include the euro, gold and silver and the gbp at -2.

On the long side, high conviction, we see USD vs all comers, Eurostoxx50 and more controversially Brent crude.

On the Audusd they have gone neutral, as have I, for now. Fitzpatrick above is expecting more.

Covering some of the same asset allocations, I don’t have any leverage on gold and silver but i do have a position funded by US$ cash. Given how far the USD has moved and the weakening data points Ive diluted my US$ longs by purchasing gold. I’m long the Euro vs GBP and even holding some euro cash ie I don’t yet know between the two instruments, ie gold and the euro on the near term, which will prove the better asset to hold.

More reports.

Here CS’s excellent chart technical run through

cs-charttech-14-3-15

CS rightly have become much more cautious on equities. They expect more weakness with multiple divergences, correct in my view.

And here CS wealth with some equity recommendations and comments across multi markets.

CSWealth-14-3-15

“All eyes to the Fed” sums it up really. Longer term the ECB will start to hit problems on lack of assets to purchase at some point during their quantitative program, most likely. 20% of German bunds are already below the ECBs yield rules for purchase. The Bundesbank is having to buy bunds further and further along the yield curve.  Even the ten year, Spanish government debt, hit  1.15% a few days ago. As several commentators have noted some entity or other is going to lose a ton of capital on bonds.

And here the excellent technical indicator report care of Yardeni:

Yardeni-wklytech-17-3-15

There are so many divergences here to comment on. According to historical precedents we have should have already seen a steep correction in asset markets but with central bankers so determined to either increase the money supply and or buy equities they are keeping a floor under many asset markets, for now. Historically, putting off asset price corrections via monetary meddling usually leads to a worse correction later.

And here an excellent and somewhat worrying report from JP on our previous experience of bubbles and interest raising periods.

Please read this report. I can’t run through all the slides but the divergences between prior periods and this is telling.

JP-Bubbles-17-3-15

And here the very useful technical flows report from JP:

JP-Flows-15-3-15

The ECB’s challenge of asset buying is examined. Norway’s sovereign wealth fund has been a big equity buyer once again.

Here some macro reports:

Firstly JP:

JP-Macro-15-3-15

And here RBC with their usual excellent report:

rbc-macro-15-3-15

And here a trio of FX reports:

First up the usual MS fx tech weekly:

MS-FXwkly-14-3-15

Great report, as usual.I don’t agree on all but solid report.

Here HSBC on global fx

HSBC-FXmacro-12-3-15

And here from the same team a good bit of research on the UK GBP situation. “Risk is not priced in, at present”. Though the process has started judging by the gbp over the last few days.

HSBC-FX-GBPelections-10-3-15

And here on commodities Commerz

Commerz-commodities-11-3-15

And here Yardeni on Gold and its ratios.

Yardeni-gold-17-3-15

Vs other assets gold is cheap on a historic basis eg property, bonds and equities. Vs money supply it is extremely cheap. These are indicators we all know of course but its worth being reminded.

Good luck to all. Yellen in just a few hours now.

All the best

Rich

p.s. Though i have personally bought this book and I would recommend all buy it and buy a copies for their friends and children here is a pdf copy of the great “The Road to Serfdom, with The Intellectuals and Socialism”. F.Hayek

Hayek

I’m traveling again I’m afraid so i’m going to have to update this on the move.

The sell off was well flagged technically so, at the least, hedges were the order of the day on the reversal bar from last Tuesday.

For more aggressive price traders Thursday provided a weak bull response setting up the big Friday bearish move.  (Its instructive to observe that when momentum and volume comes to the market price bar techniques work perfectly. The problem for traders is to understand that the technique only works when price has momentum and volume).

Technically on the short time frame we are oversold after yesterday’s session so it is likely that some sort of attempt northward to back fill should emerge here. If its weak it will be correct to aggressively short this market. For confirmation we must wait to see how weak the push northward is. The weaker the better! Europe is out performing, ex UK Ftse ie euro equity markets are in that sweet spot, for now, of displaying a negative beta to US indexes on poor days and a + beta on good days. The euro as the carry has been excellent but looks very stretched to me and ripe for some kind of short term reversal.

Anyway without more delay as I know many are waiting for their report, here the Swiss team’s technical run through:

wklytech-10-3-15

Note the US T bond comments. From a macro perspective, with world growth so poor, if US interest rates on the ten year move to 2.9% you can kiss goodbye to any notion of a US domestic housing revival. You can also, most likely, kiss good bye to the high yield US$ bond market and many of the US$ pegs inc HK$. Anyway, much more on these issues later. I can’t wait for some of these scenarios to emerge but personally i doubt the Fed would want to see the 10yr rise so strongly given weak US and world growth and the strong US$. Like many market prices they will be forced to intervene, i suspect.

Here GS’s latest forecasts (and back nos) for SP500 cash expenditures:

The largest growth item is acquisitions, followed by share buy backs, again. Debt is cheap and so corporates are busy trashing their balance sheets to acquire competitors and buy back their own stock. Unfortunately for the global economy they are not increasing debt to invest in their businesses. Note, Capex spending has gone negative at -3% for the year, nominally. In official real terms around -5%. In real real terms worse. So much for the long fabled investment boom.

Here Fitzpatrick’s usual:

cb-07-3-15

Note he lowers his target for the eurusd to 0.89 by end 2016! Following a shaky first quarter, his analysis over the last year or so, since we have been following him here on Capsyn, has been pretty much spot on. His reading of the US jobs data I’m less convinced on. The jobs created have been low skilled service jobs that can be cut tomorrow. More have been added to US disabled benefits than to the employment number. Housing transactions remain at extremely low levels. Capex and MV remain at extremely low levels that are not consistent with a ‘recovery’ at all. Its the most strange economic recovery in economic history we have seen. To ignore these data points is very dangerous. Technically we would call the macro recovery data full of data divergences, emphasis added! This implies it is structurally weak and therefore could roll over very easily. Lets see. For asset allocators, if it does roll over easily, then gold and 5 year treasuries are probably not a bad buy at the turn.

And here GS with their usual chart tech run through:

GS-wklytech-8-3-15

Published close of play Friday you can see many of their weekly targets have been met from eurusd to audusd to usdsgd. Two of the three trades I have been engaged in. They maintain their bullishness on the eurostoxx50, as do I. With the eurusd at sub 1.30 the euro area exports and trade surpluses will boom with most of the boom taking place in Germany. Industrial and manufacturing companies hedge forward out put typically 6 months ahead so the macro numbers should start to reflect the change in the fx positions any day now. The US trade numbers should also soon start to show the new fx levels.

I’m going to have to update this post with the remaining reports in the next 24hrs as a version 2, “V2″update.

As a tactical trade recommendation i’m watching the eurgbp for a reversal. I’ve allocated ahead of price but not aggressively until price shows. Its super extended at present but no loss of momentum so no confirmed price entry, yet.

And here, although i don’t agree with everything in this report, the regular excellent fx report from CS:

CS-fxwkly-10-3-15

Many of their 3 month forward targets have either been hit or are so close to being hit that the target can be considered met. Even their 12 month targets are now close. In terms of cross asset correlations its worth commenting that periods of US$ strength have generally not been positive periods for equities. Lastly its worth noting from a chart perspective that the trade weighted value of the US$ is coming close too her secular bear market trend resistance. A secular trend that has endured since 1964.  Ie I would be very careful to chase and over allocate here to the US$ here.

Here ML arguing the secular US equity market bull case:

ML-USequities-10-3-15

Here ML adding some macro analysis to the case:

ml-macro-11-3-15

The rate cycle discussion interesting.

Here MS with their usual outstanding weekly FX update:

MS-fxwkly-08-3-15

Lets examine their case here. The case is long US$, short the Euro and S.Amerian currencies. On the bearish euro case they make 3 arguments.

A) Hedging euro stock allocations. As I would call it “un-funded” stock allocations. This is the classic monetary debasement trade that worked very nicely on prior episodes of central bank monetizations. Ie in the US, UK and more recently Japan. The hope is the Euro area will be no different. II would point out that, due to the ECB signalling the monetization so far ahead of the actual monetization (only started this week in fact) the currency has moved far ahead of the ECB. Effectively I suggest the currency move is already priced in and has actually moved far ahead of the quantitative action.  To remain short the euro and long the US$ from here is an extended and full trade. The risk of reversal is immense on any disappointment from the US.

B)Euro as a funding currency. The point here is that euro area companies or companies with euro currency incomes replace US$ and Yen credit for euro credit. The suggestion is that these companies then switch the funds into overseas currencies to fund investment overseas. The strategy works so long as the euro continues to lose value ie the debts become smaller in trade weighted currency and the assets worth more, ie overseas investment. Correct up to a point. I would strongly suggest at this extended level that few corporates would now use the euro as a funding currency on this strategy. Corporate treasuries should have used this strategy in the last 12 months. If they did they contributed greatly to their corporates bottom line. From here on in the chances for even lower rates and more currency debasement looks limited. The risk reward on this strategy has greatly altered. Again, the trade is full and ripe for, at the least, a short to medium term reversal.

Finally C) They make the case that off shore holders of euro credit will be sellers to the ECB. And the suggestion made that they will switch the proceeds into other world currencies. Although euro bonds have seen a great compression to switch the euro proceeds into  foreign exchange now post the 25% debasement of the euro appears a strange strategy to me. Yes they may be sellers and they may cover their downside with options etc but they are unlikely to be physical sellers of euro cash. They would more likely buy euro stocks with the proceeds, for now.

I’d add, from a technical view point the pair has momentum and an obvious target of 1:1 appears likely, though warning on the reversal as above.

And here a good wealth allocation report from JP:

JP-wealthwkly-09-3-15

Here the ever fascinating flows report from JP

JP-Flows-08-3-15

Here the outstanding chart pack analysis from CS:

CS-Charts-7-3-15

Still many more to come, later today as a V3.

All the best

Richard