Capitalsynthesis

Guys, I’ll update this in real time through out the weekend but here for starters is the summary of the usual annual technical forecast update, albeit in a new mifi2 compliant ie proprietary format.

A small change that I make our Capitalsynthesis a closed group and enrollment is by invitation only or by reference of existing community members.

Onwards and my sincere apologies for the long interruption in service.

Summary

2018 saw the start of the cyclical bear market with many world mkts topping out prior and finally the US indexes topping out in Q1 2018. The corrective bear market has started but to be clear the bust phase of this cyclical bear market is missing. This is likely to be a corrective ABC bear cycle in which we are still at the early stages of the B cycle. The real breakdown in global equities lies ahead. Targets and levels on each of the lead indexes will be discussed below.

Timing wise, expect global equites to be vulnerable for a second deeper bear wave from a summer top into late 2019 or early 2020 with Euro Stoxx-50 level target at 2600.

Sector wise we saw relative strength in defensive vs cyclical themes commence in 2018 and this trend looks like to continue into h1 2020. Defensives as a relative outperformer is a given although having said this given the weakness across all risk assets the relative out performance of the defensives might not be enough to keep then nominally positive for the calendar year.  An absolute correction of the over-owned US defensives inc biotechs has a high probability outcome. One of the candidate sectors for a nominally positive year are the European under-owned telecom and utilities. (As of 25th jan 2019 many are over sold inc VOD, emphasis added). Positional Q1 Q2 trade, a tactical rebound in the oversold cyclical sectors from a likely Q1 low into Q2 early Q3 summer19 should be on the radar.

Credit markets are a key h2 trade and its a high probability that credit spreads will blow out and particularly bearish EM/high yield and small & mid-caps. US$ margin debt as well as corporate debt are at record levels. Also consider the central banking cycle has peaked, tight market liquidity, and credit spreads still at benign levels. Its a likely we see a major market event in credit on the wave C in credit markets. 

US$ wise we have an intact secular bull market in the usd. Post the h1 risk on rebound the stage is set for an h2 into q1 2020 us$ bull leg wave in a maturing secular USD bull trend. 

EM markets inc Australia will likely provide the +beta correlation to risk on indexes out performing in to h1 to the upside and to the downside in h2. Country risk wise Australia carries the highest risk premium to the down side for q4 2019 and q1 2020 – watch the aud and Australian risk ex Aud quoted gold miners.

 

Gold bottomed in August 2018 gold completing a wave C correction as the base for a likely major breakout attempt in 2019. Gold has a bullish target $ 1490 by yr end which given the secular US$ market is intact, this is meaningful. It is possible that gold priced in some currencies makes new highs inc AUD gold. Silver is the +beta outperforming gold but the alpha investment case for 2019 remains the explicitly bullish – gold mines.

Bonds – bullish bonds. After a tactical yield bounce into Q2, US 10-year yields should likely slide towards 2.00% and where AUD 10-Year yields could break their 2016 low into Q1 2020 forecasting Australia’s first likely recession since 1991.

Charts and Detail to follow..

 

 

 

 

 

 

 

Happy Easter guys,

2018 has indeed played out according to the expectation of higher volatility against a back drop of a trend change price distribution and ending of this 8 year bull market for US risk.

As we look across US cyclical risk from the sp500 to the Russel2000 to the nas100 its all still a fairly bullish setup. We have price charts generally showing higher highs and higher lows on confirmation price momentum and good sector strength, inc US Finance and Banking, albeit at record leverage and sentiment levels. Given this set up for US cyclical risk, its still too early to get short here even on a hedging basis by my practice, at least on these charts.

Internationally, as has so often been the case throughout this 8 year bull run in US risk, the technical picture looks so different. Internationally its fair to say, Japan aside, we have remained inside a devastating and historically very rare secular bear market. Inflation adjusting there has been nothing like it since of course the three decade 1920s to end 1940s depression and war.  In fact from an economic historical perspective the charts and capital destruction, inflation adjusted.

International indexes US adjusted eg the eurostoxx50 or Hangseng (hkd pegged) things look a little better and although we see price consolidating below the 200 day ma here its still constructive with the 50 above the 200 day. Of more concern are some individual indexes which already weak throughout this US bull mkt have attracted more selling on any US weakness. Its a blood bath in most of peripheral Europe and we can only imagine what might follow to euro risk as well as the social economic fabric of Europe if/when we see a period of global demand weakness and higher rates, (EMPHASIS ADDED).

Tactical moves aside, rates have broken down from their secular bull market and thats a very negative head wind for risk. Keep watching that 2/10 spread for the clear indication of a risk off event. Its getting ever compressed downward at now 50 basis points but that’s an amber alert not red alert level so we still have some room here for risk assets to move higher.

Here the re-confirmation of the breakdown (inverse for rates) of the 10 yr treasury which we actually picked up here as one of the earliest market commentators on the breakdown a few months ago.

Defensive yielding assets have therefore topped out at least on a relative basis to their real term value. From here on in, tactical bounces aside, value will be lost. That means outflows from the asset class of defensives and bonds. And where do those outflows end up?

Which brings us neatly to Commodities. The asset class remain fairly constructive with no obvious break down signals as yet though we can see from the price chart that the warm tail wind of USD index weakness may be coming to its end shortly. The second warm tail of wind of rising inflationary expectations, tactical corrections aside, is likely to sustain. In the longer run the positive correlation for commodities to inflation is the stronger of the two correlations so we must remember this as we likely step forward into that “thunder road” scenario (painted a few years ago) of an inflationary reset.

To remind, when an inflationary reset occurs alongside a US$ debasement the stage is usually set for a super cycle bull market for commodities.

Gold in my view deserves a separate post at this stage in the cycle for macro asset markets. Both technological (block chain) and monetary issues are playing out in a way that is only emerging in the tech. Its too early to get heavily long via leverage precious metals again but we should be alert again to the asset class. A dedicated post is due.

Reports here as a v2..

wklytech-30-3-18

and here GS CTM (ill try and update tomorrow with their latest).

GS-CTM-27-3-18

And here Citi from 21st March

cb-wklytech-22-3-18

And here JPM on fx

JPM-fx-24-3-18

On a personal note im down 3.5% or so year to date. Out performance although dollar adjusted slightly worse.

I continue to invest my resources into enabling volume off market bitcoin transactions. Its a tactical opportunity that i was dragged into initially that has grown into something both tactical and likely strategic. I find myself at the center of a global activity in the space and i’m increasingly interfacing at institutional and ultra high net worth levels across the globe for this activity. The numbers involved are incomprehensible to many. I hope to bring more news of this at soon though i have signed non disclosures to the moon and back so i am unable to go into any specific details. I repeat the offer that if you have some requirement for off mkt btc transactions please reach out.

My final words would be don’t get flustered on risk weakness. Stick to your practice and breath. The end of this bull run is not guaranteed here in spite of what the Swiss team, who i respect greatly, say. The turn is close but no need to be too quick here. It will work its way through.

All the best guys

Rich

 

 

 

 

 

 

 

 

 

 

 

 

We have a continuation of volatility across risk here albeit providing a fairly constructive long set  up for US risk and even most international risk cyclical markets.

To try and summarize the recent price moves using the sp500 as lead here:

The US Sp500 scored a new price high in January on excellent breadth, albeit at contrarian levels of high sentiment, margin and low volatility. Volatility came back with a lightening speed spike up as price crashed downward on a very hard correction. Price put in a double bottom mid Feb price move at her 200 day moving average, clear bullish price momentum divergence on the second wave attempt of the double bottom. And then price put in a high momentum move back to her 76% fib retracement of the prior high whereupon she is consolidating the gains. And as you look across risk you see that the lead indexes made back nearly all their losses eg banking, tech, etc. It is selective though and we can see that anything inversely correlated to higher rates has been sold, hard and anything positively correlated to higher rates have been retained and bought back though without producing higher highs yet.

What we can clearly see therefore, thus far, is that remains likely a part of the top building process and that selectivity will only worsen and frustrate those seeking an exist here from unloved issues. Any themes defensive in nature are going to continue to be sold.

World indexes are continuing to see much weakness and divergence from US risk continues and has widened. The divergence is so wide by my quant that I don’t see the divergence widening any further but those that seek a mean variation gap close should take the tactical trade with extreme caution.(Hangseng HSI would be personally preferred tactical trade rather than Eurostoxx50 close FEZ).

Here the reports:

GS-CTM-2018-01-22

GS-CTM-26-03-18

A bearish risk theme.

cb-wklytech-22-2-18

At odds with the UBS team’s base case of the dollar basing here.

And here JP

JPMorgan_FX-Markets-Weekly-4-3-18

And here UBS equities:

UBSequities-010318

And here Meisels:

Meisels-050318

No Swiss team this week. Next week their report.

And to be clear, I remain long risk albeit with very limited leverage. I also remain heavily involved in various OTC BTC deals. Do reach out if large OTC BTC is a requirement.

All the best

Rich

 

 

Another week rolls by and we finally have some market volatility and a negative week of price action. Its broad based across all risk markets, globally.

For technicians it was an interesting (tactical) price top set up with a narrow upward channel for most US$ risk through out Jan18. Breadth has been excellent and across indexes from sp500 (SPY) to tech (QQQ) to finance (IYF) have confirmed the breakout price highs.  Indeed, Sp500 and Nas100, Nyse, its worthy of comment that number of stocks over 200dma and reaching new 52wk highs reached ultra high levels recording stds of +3 which is unusual and tactically exhaustive. The smaller cap stocks covered by the sp600 did provide clearer divergence and non confirmation therefore with fading breadth of 1std above the mean for 52wk highs.

US risk, price momentum through the whole of January has generally been strong also, smaller cap stocks aside. Inevitably a little divergent, non confirming, as the month went on but not at a highly divergent level which would have more clearly demanded a hedge.

Sentiment has of course been ultra high as has margin levels but it self not enough to hedge by my practice.

Sector wise, although the major cyclical sectors of Finance, Banking, Semi conductors (SOXX), tech confirmed the wider sp500 higher highs the transports (IYT) had topped out on the 16th of Jan. The semi conductors was consolidating albeit at higher high levels and housing saw a major reversal earlier than the market at -12% from her highs and well below Jan1st levels (doubtless due to the ever rising mortgage rates driven by the ten yrs appreciation, but the spread remains healthy for now, as below). So although the lower sector breadth was none confirming we did not see this show in the nasdaq100 and sp500 breadth.

Perhaps a long way of excusing not having any hedges heading into this tactical correction. Price patterns and momentum to the downside suggest this could run to the 2695 price support area sp500 (cash) which would take back all the January price gains.

But what is always informative in these tactical moves will be the sectors that are the – and + betas from these mean price moves. We can already see Finance and Banking (IYF, EXX1) have been the + beta to the upside during Jan and are now proving the – beta to the downside ie they are rising faster in risk on days and falling slower in risk off days. In spite of the risk off tactical atmosphere the higher rate, whilst maintained growth environment appears to be holding true therefore.

The 2-10 spread on the US treasuries hit the 50 basis point level before bouncing but there are no signs therefore as yet that the yield curve compression is in anything other than an alert observation level. Currently she is at 0.62% which continues to indicate growth conditions albeit in a rising rate environment.

NOTE, the UST itself fell on Friday, far from being a risk off asset it continued its bear market with the ten year rates hitting 2.85%. The breakout in rates and breakage of the near 40yr secular bond bull market has sustained. The inverse to risk is no longer working for now. (This left one asset class on Friday as the safe heaven, ie the US$ rose as even Gold as well as bonds fell on Friday).

Defensives have entered a bear market topping our mid 2017 which remains a confirmation of higher rates, a wave 5 market and positive for cyclical sectors.

Higher rates are bad for property Reits as well as defensives and as expected the high is probably in therefore. The Reits have taken a hit due to the rising long end rates across the globe inc Singapore. Rising long end rates must be alongside a positive 2/10 spread means a bear market for Reits an exist or at least reduction in the asset class is wise on bounces.

This continues to be a classic set up long finance and banking therefore. (GS, BAC, WFC, etc).  Its about as bullish as it gets for US financial cos right now.

Inflation expectations remain extremely benign, TIP at 112.5 and in fact scored a breakdown on Friday even as the 2-10 spread increased, the fed jaw boned higher rates. The UST There is nothing to indicate that this bull market is in danger from inflation, or deflation right now. Near term rates are rising but growth with low inflation remains the expectation. The Goldilocks scenario remains the consensus albeit with price getting ahead of herself tactically. The rapid price accent needs to have some support/price discovery.

European risk, US$ adjusted has seen a major move upward through Jan. Price has moved back to her 50dma rapidly with the 200dma in line of sign. Its likely this area should be a strong support price area.

The weak US$, until last week, (chart below) has nominally adversely affected local currency performance of risk in Japan, Europe and other non US$ pegged markets. HSI, as the HKD pegged to the US$ has been a very strong local nominal market which scored the highest level of price momentum since 2015 surging +10% in Jan alone. The over bought level at an extreme of extreme and so a tactical breath here to be expected.

A forthcoming US$ bounce looks likely so long as her near term support is not breached. Has copper (and therefore the miners) topped out on this wave? Although the copper miners move around (copx) the underlying her self still looks constructive to me. Though the AUDUSD did not breakout on the recent US$ weakness and the entire recent bounce looks merely corrective which is a non confirmation of coppers new recent marginal high. So we need to remain alert to this issue especially as the swiss teams view is to expect a near term top.

Oil remains bullishly bias for now.

Other than this element of risk, none of the indicators and price patterns suggest this is major market top. This is much more tactically corrective move, for now.

To the reports:

Here the Swiss team:

wklytech-1-2-18

And here the US equity technical ground up view, also from UBS:

UBS-Stocktech-030218

Remaining uber bullish as you would expect.

And here GS with their piece from last week:

GS-CTM-2018-01-22

Many of the technical themes here remain in spite of the volatility here with them neatly nailing the long US$ and short commodity trade, albeit at low conviction when they first published here. Their sp500 target unmet.

“Sp500 – The recent parabolic price action could forewarn of an equally steep retrace”

Correct which we are seeing now but the medium term landscape remains bullish.

And here CS with their technical mm:

Cs-MMTech-24-1-18

CS missing their sp500 target also, for now.

A couple of standout quotes, which mirrors my own practice guys.

“S&P 500 remains at its “typical” extreme, and is now at its most overbought since 1967 on a weekly basis”.

“Breadth and Volume measures stay bullish, suggesting weakness will remain corrective”.

Both comments are correct and explain greatly the no hedges here dilemma of asset allocators; inc my good self!

What follows is for those that look beyond the technical and enjoy some macro comment. You have been warned. Technicians, look away:

The crypto space continues to provide much infomation for those that care to understand it.

parochially, my BTC OTC deals roll on and on in spite of the recent super volatile price action. In my humble opinion, BTC is clearly a proof of concept for what is to follow. Tactical price moves could and probably will go anywhere but thats not what should really interest us, tactical deals aside. The big picture is whats fascinating guys so indulge me here a moment.

Tactical moves aside, the US$ has been trading on borrowed times since Nixon took her off the gold standard. The great credit crisis was the final nail in the coffin for the global elite’s tolerance of one nation’s fx being the world’s reserve monetary system. Block chain technology is about to change our world and especially its oldest monetary asset ie Gold. I have commented on this before. The momentum is building and even parts of the monetary establishment are starting to come to market with future offerings though clearly we still have a technology gap to fully deliver these promises to the public (eg. 5g, faster and more efficient hardware, etc). But I’m happy to see block chained fractional gold (1/28th) has been announced and will continue to re take her rightful place as an international store of value and payment system for corporates and governments alike. A roll she has held for 6000 yrs more or less. Interrupted only for a few hundred years by the GBP and more recently the US$.

Here the royal mint:

https://cointelegraph.com/news/uks-royal-mint-launches-gold-backed-cryptocurrency

I would suppose the fractional level will be held purposefully high so as to ensure block chained digital fractional gold backed by the physical does not supplant national fiat pegged crypto fx. The game will go on then for local fiat digital, although soon not paper, fx.  The reserve fx, which is hugely important for international trade, will be once again established and separate. The 9trn in gold assets will become much more liquid and likely be a huge stimulus to world trade and growth. It will be the perfect way to avoid the coming inflationary local fiat crypto storm.

Its fascinating and meaningful stuff if you take time to examine it.

All the best guys.

Rich

P.S. Mifi2 continues to annoy. Many thanks to the contributors here for their support. Its really greatly appreciated!

 

 

 

 

 

 

 

 

 

A happy Monday to all and I do hope you are enjoying this bullish extension of this wave five impressive bull market in risk assets. Its been a water shed week with the final breakdown of the 38 year secular bull market for world interest rates. (Where US rates go world rates follow pretty quickly). Whilst inflation expectations remain surprisingly low (TIPs), the US$ is in breakdown and the risk bull mkt rally has broadened nicely to the commodity space.

This is starting to look and feel more like an inflationary wave 5 picking up all assets, US$ aside of course. For long time readers here you will recall the metaphor of the battle between the inflationary dragon and the deflationary gorilla that we have used over the last few years since the credit crisis. Well we can say 2017 was the year that the gorilla was overcome. He is on the ropes but he is not out of the fight as Tips show us and indicator wise we need to watch carefully the yield curve very carefully to check for his counter attack. A bond bear market is not necessarily bearish in itself so long as the yield curve can stay healthy. Its when the 2/10 spread compresses to zero that we have a serious problem Houston.

I’ve been holding off publishing an update whilst we run through various loops with UBS and others. Almost daily we have been promised the report but digital water marks and total paranoia at mifi2 fines etc have meant we have been seriously delayed in receiving. In the end we got the report from a couple of sources almost simultaneously and for both my deepest thanks! (You know who you are).

So without delay, I’m very happy to be able to finally bring you the brilliant 2018 Outlook from the award winning, Swiss team;

10-1-18-OUTLOOK

Some of the headline takeaways  :

*Bull Mkt top pushed out to 2019

*Bond Mkt breakdown early signal of weakness. But q2 a buy for rally to 2020.

*US$ come back in H2 2018

*Precious metals surprise to upside H1, then weakness on the US$ inverse H2.

I leave the detail to the guys great annual outlook but this is a document we can come back to again and again as a blue print for how the correlations might well play out over the year ahead.

Here GS:

GS-CTM-2018-01-15

Note, as this doesn’t happen too often, the only conviction 3 trade GS advocate this week was long Gold!

On a non technical and longer term fundamental point here, I want to say please take a moment to understand and think through how block chain technology could be applied to fractional physical gold. Think through the steps to enable that process. Think about physical gold being held in a repository, being logged and fractionally block chained. It would then be the ultimate crypto fractional block chained international monetary unit of exchange. Its a very logical application of block chain tech to the oldest monetary method of exchange known to mankind.

Here CS:

cs-mm-18-1-18

And here CS with a very special look at the UK and GBP:

cs-ukgbp-18-1-18

The eurgbp pair continues this chop and the loss of any direction here demands a lower position size.

And here Fitzpatrick with his usual excellent technical run through:

CB-wklytech-19-1-18

Euro strength and US$ general weakness which is good news for the inverse asset classes.

Monthly here for the eurusd:

Its been a crazy start to the year on all fronts. We have immense liquidity that is flowing nicely into risk here. Wave 5 certainly but we have plenty of fun to come before the hangover is also my own view. I’m happy to run through the various sector tech charts and world tech shortly. Its strong stuff.

I’m continue to broker large over the counter BTC deals for institutions and high net worth individuals. If you would like discuss any aspect of this service do please get in touch. Minimum deal sizes are high at 1000 BTC but this is the nature of over the counter.

All the best guys, enjoy.

Rich

 

 

 

Hi Guys, I trust all are well rested and back to the markets with renewed energy and focus. Hopefully all are enjoying the continuation of this setup in risk which started with new momentum early dec.

Its been a blistering start to the new year with all risk adding weight, the dollar debasing. The rally in risk has broadened nice to include the the commodities as copper leaps to new highs and precious metals start to join the party.

History rhymes of course and so price history wise we must remember the run up from 2003 to 2008 where all asset classes enjoyed the rally (less the US$) before setting up for the monster reversal that followed.

Before we cut to the markets and the various reports I want to talk again about MIFID II.  On the 3rd of Jan 2018 the Markets in Financial Instruments Directive II (MIFIDII) went live with companies implementing in different ways as regards to the distribution of their research reports.

I’m afraid UBS Switzerland have implemented in a fairly strict way under pressure from the EU.

Hi guys, a good week has passed with what looks and feels like the usual Santa rally in motion. US equities have set more record highs and although the 52 week highs are divergent from the prior wave they still have achieved near +2 STD from the mean levels of 52 wk highs which is hardly, from a longer term perspective divergence. World equities bounce but as the US$ weakens a little the US$ adjusted levels are pegged again. Precious metals and their miners in particular are getting some movement again. As one of the few unloved asset classes and given its inverse to risk plus inflation correlated properties its an add although I’d like to see some serious volatility and momentum come back to the asset class.

Here the Swiss team’s latest report guys:

wklytech-19-12-17

And here the GS charts that matter team’s 2018 Outlook report:

gs-ctm-2018OL

And here a 2017 review of the major economic themes from Wells Fargo:

favorite-charts-20171220-final

Count down to the end of the year is on. I hope Santa brings you,  if not what you wished for, what you needed!

All the best

Rich