Capitalsynthesis

Sunday night so time to be ready for the week ahead. Last week saw the bulls attempted to reassert themselves on what was, prior week, a bearish price candle across many equity indexes with a reasonable score of intra week volatility. By the close of business on Friday the Nasdaq had scored a decent perfect reversal price candle on the week. And following on the prior week’s reversal bar on the prior week’s threatened breakout. All the technical issues discussed before in regards to many of the US indexes remains and now price is increasingly confirming the raft of technical (and macro) indicators we have seen for some time. The Nasdaq and particularly the Nasdaq100 looks like it is joining the Dow and Nikkie in terms of being unable to breakout to new higher highs. The Biotech index crashed on Friday by nearly 5%.

The S&P500 is the stand alone price leader but even here price couldn’t reverse last week’s bearish bar. The divergence to momentum is significant as has been detailed in prior posts.  In terms of how participants are positioned we can see that from a longer term perspective, over a 3yr chart period, market participants hold very little protection. Levels remain at contrarian extremes in spite of the geopolitics and weak technical indicators 5 years into one of the strongest and longest bull markets of this century. For what ever reason participants remain extremely bullish and are not buying put options to protect their longs, as yet.

Many European rolled over quite a while ago. The ftse100 hasn’t been able to break above her May 2013 high since having been a giant sized distribution  indexes and its starting to become add some weight to those suggesting we are on the verge of a more severe correction. Last week’s price action saw her breakdown below her 50dma. MACD momentum divergence on the most recent attempt higher was great and the move always seemed in doubt.

The DAX was better but given the US indexes close its fair to assume she would have also scored a hammer confirmation bar of the week before weakness.

Sector wise plenty of bearish evidence with the winner’s circle of convincing price charts getting ever smaller and the strong being significantly over bought.  The SOX semi conductor has not been this over bought since end Feb 2011 where upon she saw a steep correction of -35% over the following 6 month period. Market breadth needs to improve quickly if this bull market is to sustain.

Without any more delay lets cut to the latest reports:

Here first up the GS Chart pack:

GS-CTM-21-3-14

They are maintaining their sp500 bullishness on the basis of price it seems.

Here a great technical set of multi market charts from AG again this week. Since we have been monitoring their reports over the last 3 weeks they have become increasingly bearish.

AG-Wklytech-21-3-14

And here the CS team becoming more uncertain of the bullish continuation

CS-MMTechstrat-21-3-14

and here the JP Caz team on euro equities:

JPCaz-EuroEquity-18-3-14

And here Barcap with their own equity recommendations:

Barcap-equityrecs-17-3-14

And here the JP asset management team’s set of trades and recommendation allocations. To me, this set of allocations together expose the holder to a significantly high beta upside and downside to risk on off. No trades off set each other and few trades are uncorrelated. Risk in the extreme in my view.

JP-Assetman-20-3-14

And here the JP Asia team:

jp-asia-18-3-14

And here the same team on China:

JP-asia-china-18-3-14

And here Barcap on the commodities sector. Commodities have been performing strongly in 2014 thus far as most equities have gone no where and are threatening a correction. It is coincidence? I think not. Commodities are often end cycle laggards but as we can see the cycle has been all about monetary issues rather than any normal economic cycle we might recognize. Historically oil and bullion are the usual instruments for monetary demand flows. Oil having broken down momentarily is seeing inflows once again even as equities fell on the late Friday session.  Historically this inverse is consistent, end cycle.

Barcap-commodities-14-3-14

And here commerz team’s technical charts on the commodities:

Commerz-commoditytech-18-3-14

And here some macro reports

Here from the BNP team revisiting the inflation deflation debate:

BNP-inflationdeflation-21-3-14

And here bnp on the troubled situation in Japan:

bnp-japan-march14

And here JP also on Japan:

JP-Macrojapan-18-3-14

And here on Germany’s recent changes on their pension rules bringing forward demand:

bnp-germanypensions-21-3-14

And here CommerzBank with their regular weekly macro review and preview:

CB-macrostrat-21-3-14

And here MS with their fixed income weekly review,strat:

MS-FI-18-3-14

And moving to the currency markets. Here the CS team with their weekly FX updateL

CS-FXtechstrat-19-3-14

Here the JP team with a couple of technical fx strat reports:

JP-FXtechstrat-18-3-14

And their latest from Friday:

JP-fxtechstrat-21-3-14

And here

commerz-fxtech-19-3-14

And here

Barcap-fxdaily-21-3-14

Finally here is the latest Nomura technical chart on the important (although becoming less important due to the weakening of the prior correlation risk to dx) eurusd pair:

EURUSD6

Lets hope we get some trends here as confusion and drift is not useful for anyone involved in active trading. In my view direction is about to emerge having flagged weakness in risk for some time. If and when it we get a decent correction it will the policy response that will be hugely interesting and potential throw fire on a commodity resurgence. Lets see. For my own book i’m staying long bullion and oil (for now) with short US equities via put options holding a decent cash allocation to reallocate depending on events.  I hold some wealth in stocks though its the lowest % on capital since 2009 and the lowest nominal amount since 2010 or so.

There are no certainties but the probabilities point to this allocation at this time. In my view.

All the best

Rich

 

 

 

We are almost exactly 5 years into one of the longest cyclical bull markets of the last century. And within this cyclical bull market we are at a point of significant technical “stretch” on a many different metrics including not having testing the 200 day moving average since 2012 or not having experienced a 10% correction since 2011, to name just a couple of price indicators, as examples. We have sentiment indicators at extremely bullish levels, contrarian levels indeed on both AAII and put call ratios as well as extreme historic all time high leverage levels as well as weakening market breadth, weakening LEIs, etc etc.

We are paid on price however and so until price confirms the technical and indicator weakness its difficult, no matter, how bearish you feel to take more than tactical near term bearish positional trades.  In this zero interest rate environment to sell the entire long portfolio on the basis of technical weakness can be a very costly thing to do ahead of price confirmation.

Recently however, according to MACD & CCI price momentum indicators price had been diverging from momentum on the latest attempt higher for US indexes. This divergence, in itself, is not a sell signal but alongside a price bar reversal pattern on the weekly and the non confirmation of the DOW mega caps to join the S&P500 and Nasdaq recent higher highs there is certainly enough evidence for meaningful hedging and a ceasing of buying any dips in the expectation of a major correction in world equity indexes.

For the moment we have very early price evidence of a significant US equity index corrections, alongside high conviction level technical indicator weakness. To this we can add European equity index price confirmation and world equity index weakness some time ago.

Here a few market breadth charts. The Nasdaq100 remains my own book’s short hedge over weight due to the technical weakness she shows.

Here the nasdaq100 with stocks over their 200 dma:

The weekly reversal is better on the nas100 than on the sp500. So for the first time in quite some time price is starting to correlate better to the technical weakness that we have been seeing for some time on the nasdaq100. Price momentum indicators had totally run out of steam on the index and the breadth divergence was once again providing plenty of weight to an expectation of a bearish price move for the index. Finally the weekly reversal candle stick is near term price confirmation that a more meaningful correction could have started.

Here the sp500 stocks above 200 dma:

And here the DOW:

In terms of wider technical indicator weakness I’ll leave it to Yardeni’s excellent chart pack to go through the various individual indicators. Which ever way you cut the data, for data watchers and active investors, traders its becoming almost impossible here to be a buyer of dips I suggest. This sentiment is not seen in the wider sentiment indicators (which remain very bullish) but it is starting to be picked up in the ‘best practice’ technical market commentators like Fitzpatrick, GS chart pack, UBS, AG, etc.

FX pairs wise we have some confusion in the market regarding the euro’s extreme recent strengthening. Some are maintaining their long us$ positions whilst others have cut and are moving into bullion as a surrogate US$ during this period of equity uncertainty alongside geopolitical risk. Lets recall what Kerry said on Friday that, the U.S. and Europe would take “very serious” steps on Monday over the Ukraine situation.

Below I include MS, Nomura and JP’s recent FX considerations.

To start off with this technical report update here Yardeni’s latest:

Yardeni-16-3-14

And here on economic indicators:

Yardeni-econindicators-16-3-14

And here Yardeni reporting the data on positions from the last CFTC report:

Yardeni-cftc-14-3-14

And here Yardeni on the bullion:

Yardeni-gold-14-3-14

Next up the latest excellent AG technical chart report:

AG-techwkly-14-3-14

And here I’m very happy to bring you the famous and latest GS weekly chart technical pack (many thanks you know who):

GS-CTMwkly-14-3-14

You notice that whilst they are maintaining their high conviction trade level to a renewal shortly of the bear market in bullion they have dropped their conviction rating for equities.

And here Fitzpatrick at Citi’s usual outstanding weekly report:

citti-mmwkly-13-3-14

If you buy into the Fitzpatrick strategy and analysis he expects US$ strength alongside commodity strength a super bull market in the bullion. Price is increasingly confirming his analysis and the historical evidence is likely on his side i would personally argue. Lets see as it certainly is still a non consensus trade and there fore against the books of many large institutional players. Although with the books of some of the ‘best’ and most successful hedge fund billionaire investors in the world inc Wienstien, Einhorn Tudor Jones and Paulson, to name a few. This issue of commodities vs equities and fixed income will be at the center stage of monetary and economic matters in the coming years. Fortunes will be lost and made on what occurs.

Here the CS wealth team’s ‘mm’ weekly report:

cs-mmwkly-14-3-14

& here JP’s equivalent:

JP-Allocationstrat-14-3-14

And here the JP Asia equity team’s latest picks and recommendations. Although relative valuations appear cheap vs dm market alternatives I’m personally holding fire on any additional longs at present as even lower prices are likely to emerge soon assuming we do indeed get follow through on DM equity market weakness.

jp-asia-equity-14-3-14

And here the MS team with their FX weekly:

MS-fxwkly-13-3-14

And here the JP team with their latest fx technical strat:

JP-FXtechstrat-14-3-14

And here Nomura with a couple of trade updates:

Nom-EURUSD-14-3-14

And here on the USDJPY

Nom-usdjpy-14-3-14

And here the Citi team with their latest FX tech strat:

citi-fx-14-3-14

The best asset class in 2014 thus far has been commodities. Ukraine may see more rush to the allocation this week.

Here Commerz on the asset class:

commerz-commodities-14-3-14

And here Scotia on the bullion markets:

scotia-bullion-15-3-14

From a economic macro perspective its worth noting that the monetary demand for commodities could surge if certain events come to pass. If economic growth stalls alongside geopolitical problems in the world and ‘tit for tat’ sanctions occur central bankers will likely respond with yet more monetary liquidity. Monetary increases (monetary debasement) alongside stagnation of economic activity in a negative interest rate environment usually leads to cuts in corporate capex, taxes usually rise against a backdrop of increasing fx debasement to sustain ‘demand’. This cocktail creates massive inflows to the commodity sector as a refuge for purchasing power.  These inflows simply worsen the economic stagflation that occurs which in turn can lead to capital flow restrictions and yet more monetary magic.

We are not there yet folks but it does not take a ‘wild’ imagination to see how history could soon repeat in these various matters.

I’ll have to leave it there fore now. To be continued on the forum pages, as usual.

All the best

Rich