Capitalsynthesis

August is traditionally a go slow month with most market professionals taking time out for their vacation. Nonetheless its usual to see price volatility step up even if volumes step down. Its enticing to imagine these price moves are very trade-able but all to often they are not as they are algo driven and usual cross asset correlations are unreliable for market timing during the holiday period.  Its also rare indeed for new price trends to emerge conclusively in August. Having said this the US$ does appear to have confirmed a new bull trend vs almost all and this could meaningful in itself unless the euro is to become a funding currency which, in the near term, appears unlikely.

Regardless of the false August price signals here below are a selection of recent reports.

Firstly up here an update from Fitzpatrick at Citi.

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Instruments are finally moving in the direction of his trades. Issues like the USDJPY pair that is a large allocation for him are at least showing a profit and have scored a price breakout of trend but he is far from there yet. A quick reminder, his macro stance has been strong US$, alongside a renewed wave for the commodity secular bull. The two are usually inversely correlated so this was always a non consensus call from Fitzpatrick. Lets see how this plays out. He is also a believer in the secular gold story but has no position on this instrument at present.

Next up the AG report from Friday last week:

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AG have stuck relentlessly to their bearish guns. Finally price appears to be moving their way though they expect much more weakness to come.

Here below a very insightful technical report this week from GS.

To me what catches my eye here, (aside from the usdjpy – jury out, weakness in the nik225, breakdown dax and weakness spx) are the UST comments.

GS on one hand discusses and is trading short some equity markets (and risk in general) alongside us$ strength, which fits. But GS is a bear on US$ fixed income in general and is targeting a 3% yield on the UST. This is a meaningful call as its not the usual correlation and sits at odds with the bull call on the bunds. This needs some digestion.

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Moving to FX clearly the big consensus move is the strong US$ trend. The euro which for so many years has retained her value appears to cracking vs the US$. As the US$ is usually the world’s funding currency this is usually a sign of tighter liquidity which is usually bad for risk markets as credit tightens.  This is the recent post Bretton woods history but the new wild card is whether the Ecb is finally prepared to flood the world with freshly created euros. If she does the euro will become a global funding currency and, in this case, risk prices can continue their march northward.

For this ECB move to occur a few macro ducks need to align inc domestic German economic weakness (some signs!). And also the German constitutional court needs to conclude the legality of OMT, post the EU court hearing. Also the ECB must conclude their bank stress tests and finally the EU must conclude their banking union discussions. 2015 appears more likely for OMT than 2014 therefore unless a crisis forces the ECB’s hand more quickly.

Here a couple more bullish report to counter the above on equities from ML

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And here from CS

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Here MS on FX

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Here jp

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Finally lets conclude this technical update with the Swiss team’s regular update.

Another great report from the team and corrective bounce aside they put their hands up and proclaim the emergence of the US$ trend higher and a euro top is in. This is bearish risk as they point out. They are jury out on the aud. So long as the .92 level holds they still expect one more commodity bounce into q4 which i am also holding out for on my own book which holds commodities and their producers as well as AUDs, for now. My conviction on this is not as high as it was but the case is still there and will see capital inflows to the position if the UST does not get price support as equities struggle. Lets see on this one. The other asset class calls are stop on the money as correlating to my own practice. Ie counter trend rebounds for equities and the euro most likely. We are in August recall so low volume confusing counter trend rallies are very seasonal and therefore to be expected.

Here their latest:

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Finally, on a personal note, whether you are hiking, sailing, or sitting on a beach with a beer, have a great August holiday. I’ve wasted plenty of time over the years trying to squeeze out August gains on the account to bump up my average. I’ve more often than not regretted doing this so this year i’m taking time out. Where i am trading i’m trading light and mainly on FX.

The best to all

Rich

Summer is usually a period for low volume false moves trapping those late to the trade in to loss making positions. Price is usually a poorer indicator at times when market participants thin through the hot summer months. With this in mind lets turn to some price tech reports before switching to the wider Swiss team’s report.

First up a great report here from CS using a pure price and momentum based analysis of the major markets.

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Its interesting to note that one of the world’s top performing economies, the UK, conversely has one of the develop world’s worst performing stock market for 2014, thus far.

The inverse correlation to the pound’s strength is clear.

Here gs with their usual technical run through:

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2 Bullish conviction level on the sp500 note.

Here AG with their run through.

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And here ML with a look at the fx mkts.

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And here CS with some similar views.

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And again here:

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And here with an FI viiew

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And here JPCaz on the uk property market

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And here finally the Swiss team’s latest. Its an outstanding report as they cover many markets and sectors using many different technical methods.

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All the best

Rich

 

 

Its time for the usual Swiss team’s technical report and comments.

Before we do so lets be clear that there are an increasing amount of technical problems here even as these indexes make new all time highs.

Here the 4 major US indexes (charting nas100 rather than nasdaq itself).

The situation on the nasdaq100 is very complex as previously covered as the three largest components make up such a significant weight of this index. Nonetheless this makes the analysis of the likely movements in this index a little easier due to her concentration. Technically speaking the breadth issues remain in spite of Apple’s recent breakout which has propelled the index onwards. Today I see, thus far, yesterday’s breakout has almost entirely reversed for apple. In terms of price patterns to see a clean reversal bar on the close would be very meaningful for the nasdaq100 as apple has been the major support for the entire index. (The SOX strength and overbought issues should be well known and clear to all readers here).

The real story of this market is 500m to 4bn sized cos vs the mega cos with market caps over 100bn. The divergence in performance is immense. The smaller caps technically broke down some time ago and this breakdown creeps every higher up the “food chain” in terms of capitalization size.

Here the SP600 small cap index price chart with various indicators.

She is showing price weakness with the breakout failing to get traction whilst at divergence on momentum and a narrowing of the 50 and 200dma. The index appears close to rolling over her bull trend, from pure price work. In terms of breadth below.

Of course the sp600 index contains some very large companies but the smaller the corporates become the more concentrated the winner’s circle of stocks becomes. Technically the sp600 is the weakest index and this is very likely due to the polarized nature of performance we see from corporates.

The wider nyse shows the same narrowing of the ‘winners circle” that is a feature of all tired and extended bull markets.

In terms of fx its the dual story of the GBP and US$ and price wise there is nothing to suggest this story wont sustain. Commodities have a bid and even as equity indexes fall today producer cos are rising generally not falling, oil is flat and well supported albeit below the 104 prior breakout level.  The copper breakout is also holding and the miners have a strong big and momentum. Even if we see near term weakness the recent momentum should at the least produce an attempt at a higher high for commodity themes. The AUD remains in play and should move higher from this level.

We also have an important formation, price wise on the UST.(US ten year treasury).

Without more delay here the Swiss team.

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Here AG

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And here GS

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I’ll provide the Fitzpatrick report again from next week as usual but suffice to say his jpy short position is in grave grave danger here and now. With an allocation of 40% and a trade that has been running for some time. Its going to sting if he gets rolled over.

And here an excellent tech run through from CS.

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And lastly not a technical comment but team please don’t underestimate what could occur price wise to the bullion markets. Bullion is still inside a spectacular secular bull market. Volatility is not high so the door is still open to asymmetric trades in the asset class. Check allocation levels whether a leverage trader or cash investor. Its a good time to dust off your bullion charts, is my comment.

The mean reversion and over extension of the bullion is likely to be spectacular when it occurs for very sound and well known macro and technical reasons.

All the best guys

Rich