Weekly Technical Comments – “Short-Term Bounce Before More Weakness”

Below the latest Swiss team’s comments on the major market indexes from across the globe.

Short term issues remain as were. On the short term, we have a bounce  which is an opportunity for adding to hedges. Euro indexes have having been more over sold have enjoyed a higher bounce than the US sectors, thus far.

Of particular note the sx7p or euro banks have enjoyed a large bounce in the last few days and are at a reasonable hedging level again if you are either long euro banks or a trader looking for an decent profit loss entry point on the chart. (EXV1) is the Ishares IBIS listed etf.

Commodities are discussed and their mean reversion from a may tactical bottom is sighted. Bullion is also highlighted  inc a mention of manipulation in the market. The Swiss team prefer to ref the US$ strength and equity strength as the explanation for now though the fact they, in addition to the FT and other market commentators, discuss the issue is note worthy in itself. They again stick to their secular bull intact though raise the

On the longer time frame, the market cyclical issues are also discussed which is of great interest.

We have some confusion in the cyclical road map here. Much commodity weakness indicating deflation, which should be bad for equities just as equity indexes remain close to record highs. Is the equity market indicating the perfect begin inflationary conditions in step with zero interest rates, renewed consumer spending? In other words a new secular bull market for equities? In my view, we are in uncharted monetary waters which would explain the sector correlation confusions and therefore cyclical confusions. The market will find its north eventually as it always has done in the past. Timing is, as always, the issue here. Policy makers can alter laws and debase their currencies to hold up values but there are always consequences for such actions and these will show themselves in prices, eventually. When they do clarity will be found in the various asset markets. As policy makers interferences are becoming more pronounced prices increasingly adjust in shock, mean reversion, moves. These shocks make trend trading particularly complicated. Trends run until they snap back in one lighting fast reversion to the real conditions in the economy. If markets were allowed to run their course in stead of being smoothed by central bank and policy maker “jaw boning” we would avoid these “heart in mouth” reversion to reality moments.  As it seems there is little to no chance of policy makers stepping back we had better get used to trading in these circumstances.

Report here

Wktech-23-04-13

All the best

Rich

 

 

Weekly Technical Comments & More.. “Equity Market Distribution into a Top” & “Bullion Secular Bull Intact”

Ok, attached below the latest view from the Swiss tech team. Another great report and nothing in the last week has invalidated their view on the major asset markets which ties in to my own views as documented on the forum boards.

US index Sp500 false breakout. Rus2000 failure and looking very weak. Sub sector weakness with no new higher highs in all the major indexes. Simply a few issues created the false breakout. Euro indexes and inter market sectors bounced but a very weak bounce which fails to convince or confirm any sustainable strength. Commodity weakness and generally deflationary theme coming through. The bullion market surprising weakness but nothing yet has invalidated that a near term bottom is very close and that the bullion bull market is intact.

I’d only like to add instrument selection now with such volatility in key bullion markets is key. Option calls are a more expensive tool than futures but in extreme volatility where clinical entries are impossible i would encourage all to explore the instrument. All you can lose is your premium with such instruments. 80% of the time you will be wrong but the gearing is so high and  (especially in volatile huge secular bull markets) the upside is so great that the instrument, at present, is an ideal tool to use. Options are useful (and most profitable) in highly volatile markets after a period of distribution. These are exactly the circumstances we have in the bullion markets right now which. Any questions on these instruments come back in the forum pages. Here is also not the place to go into the detail of the open interest issues on the bullion nor the comex physical supply issues but the issues are real, large and potentially game changing.

Ill leave the immediate technical detail to the report but happy to discuss option and OI, order book and physical bullion issues on the forum.

Wklytech-16-04-13

I also include the German team’s more limited (though nonetheless useful) tech report on the Bullion

BullionWeeklyTechnicals-12042013

Also on the macro front, an excellent report slightly surprisingly from WF. I say this as usually they are guilty, in my view, of coloring their reports towards a pro US centric view of the world. But on this occasion, in discussing the longer term horizon, they are unusually open about the issues facing the US and developed world economies. The report attempts to seek historical precedents for where we find ourselves and explores the keynesian counter cyclical strategy. It concludes we have moved well beyond the keynesian model, as we also concluded several years ago.  We have an all together more virulent strain of neo keynesianism. The report makes pretty bleak reading. Don’t sell your gold folks.

Here the WF report: Fiscal Policy Model 04152013

And finally. An investment area of mine and many on this website i believe, in the last few years, has been Singapore and her currency. I therefore include the quarterly macro update from WF on the Singapore economy.

Singapore GDP_Q1-2013 _ 04152013

Instruments and detail on the forum as usual.

All the best and onwards we march.

Rich

Weekly Technical Comments – “Again, Don’t Chase This Rally”

The Swiss team’s latest weekly tech view below. They are sticking to their call not to chase this rally but above S&P500 1535 it remains bullish but technically very weak.

They pick up on many of the same issues we have been seeing and commenting on in the forum, for some time. Continued inter market weakness, low volume, market breadth issues. They also pick up on the vix divergence on the recent breakout high and also the over bought weekly indicators which are at extremes.

Some specifics.

SOX (SMH) failure. She’s at a key support today. On yesterday’s latest breakout they neatly pick up on the exact same comments we have in the forum pages ie health care and staples leading in the charge in the US indexes which is hardly a bullish indicator. They also belatedly pick up on the smaller & medium cap issue weakness in the russel2000 index that we have been noting for some time in the forum section.

They note the HGX false breakout. Let me repeat here, “from failed moves come fast moves’. Its a fascinating index to be short specific issues the housing index as many have moved to a price point beyond their 2006 2007 high water marks yet housing volumes are very light by comparison to prior boom conditions. (As we have commented, it appears participants may have got way ahead of her self on housing related issues. And where housing leads the consumer tends to follow ie consumer discretionary will follow).

Correlation and inverse correlation instruments. The USDJPY has recorded a trend break, which again we have picked up and this is dangerous for the nik225, etc. Em indexes small bounces but the highs of their rallies where recorded back in feb, in the main. The AUDUSD has continually failed to breakout and the commodities remain weak with copper, a key cyclical instrument showing great weakness.

There are so many independent pieces of evidence here. Its a strong case that we are within days of near term market top. Unlike the team my own work does not produce such a clear indication as whether this is the top for the year or whether it is a near term top only ie with one move large bounce to follow later into q2. On an extended fall in the indexes i will be on the look out for clear evidence across the usual tech indicators for a base in price in the key sectors like finance, housing, tech and the industrials as well correlating international instruments. On a high degree of confidence take the entry and then see if she runs. Its as simple or complicated as this for me. We have had a bull market in equities for the last 4 years or more. The failure of this bull shouldn’t occur in one move over night. This seems entirely logical to me especially as we have late reversal of fund flows who will be looking for entries to belatedly enter this equity market.

Lastly the team remain bullish the bullion even should the prior low be found at 1555. I’m sitting tight on my bullion. The commercial shorts are at ten year extreme positions. Should a short squeeze occur it could be a significant market event.

Here the report:  http://www.capitalsynthesis.tech/wp-content/uploads/2013/reports/UBSTAWeekly03-04.html

Apologies to non flash users. The report is in a flash format this week.

Also here the German tech view of the bullion market from Tuesday. There is nothing new here. We all know these levels clearly as does the entire market. Nonetheless its always interesting to here their views if only it re-confirms that many in the market are using the same levels.

Report here: BullionWeeklyTechnicals02042013

And a new report here which is the Swiss team’s run through on the major fx pairs. I’ve been tracking for a while and its a good report so it might become a regular. Usually at the start and end of the trading week their comments extend a further than the day view which is the useful bit in my view hence i post up here yesterday’s report as the start of the European trading week.

Report here: fx-02-03-13

The devil is in the detail as always. So lets continue this on the forum pages.

I encourage everyone who reads these reports, of which i can see are over 300 unique visitors a day, join us on the forum pages to share practice and knowledge. Its to all our advantage to do this.

All the best

Rich

 

 

 

 

 

 

 

 

Quick End Q1 Comments, Practice, Tech Charts..

Happy Easter to all. A few world markets are open today but as there is a euro area holiday today its very quiet. I thought I’d use the time to post up a few end of quarter comments and charts as well a few specific trade monitoring screens that I use regularly, in the interests of sharing practice and knowledge.

Tracking through them the long J-reit trade has been + beta trade in the wider Japanese equity bull run. The trick here to achieve a double + beta was the fx side of things. Its one thing to get the sector correct its another to get the fx correct ie either long or borrow and its another then to get the stock selection within the sector correct. Allow me to enjoy some success on this trade as a tick in all three boxes occurred over the quarter though i did let the US$s go a little to early in hindsight.  Soros apparently 1bn us$ this quarter alone from a very similar trade. Its my understanding he bagged the alpha, of course, by being long some specific Japanese industrial stocks with borrowed Jpy. This was the highest paying trade in the market in Q1 2013. My hat off to Soros who regularly seems to bag such trades. The other greats in the business must be slightly envious of freedom of movement. Ie Einhorn and many of the greats are hamstrung by the focus of their various funds. Soros and his family are trading their own capital now across the world’s markets so can opportunistically take these macro trades. Anyway well played Soros and his team.

Of course i could get all philosophical here on this Easter Friday,  for a moment i will. We should note finance is a zero sum game. Japanese pensioners and savers have transferred their wealth to speculators this quarter due to their government’s jpy debasement strategy. Their purchasing power will be debased by Kuroda and his team at the BOJ.  I make no judgement here on Soros, or myself for that matter. I could quote Austrian school economists as to why such speculator actions are actually functional as actually such trades thwart government expropriations. Ie if all Japanese pensioners had taken the same trade the government could not have debased in the way they had. Speculator’s actions are market enhancing and free markets are what protects liberty. It does not destroy it, contrary to what the central planning, Neo Keynesian, progressive doctrine tell us.  Enough of the philosophy.

 

On the macro and micro economic news front everything has been consistent with the weak ‘recovery’ story. Understatement of inflation continues so theoretical growth occurs. Real incomes keep falling, although disposable incomes is apparently rising given debt servicing costs have been pushed down so aggressively by the Fed’s debt monetization programs. Debt servicing costs for the US consumer to income is at an all time record low.

 

(Although its also worth noting that the US 15 and 30yr mortgage rates are refusing to fall further and now rising, in spite of Ben buying as many as he can each month. Has the tailwind turned and is now becoming head wind on disposable income?).

World trade economic indicators keep bouncing around a neutral position indicating continued weakness.  World pmi indicators remain very subdued/weak. We got the US enforced budget cuts. 2013 cuts amount to 85bn which is the same amount as Ben prints off every month note. Therefore the effect on ‘growth’ is limited and the markets understood this. More meaningfully in terms of fiat monetary confidence, an important issue for holders of gold we got savings confiscations inside the developed world and also very harsh capital controls. The euro has taken a small hit and bullion hasn’t moved on the news and is down over 5% in the quarter. Sometimes markets don’t appear rational and this is one of the those moments. Optimism that Ben and the neo keynesians have discovered alchemy and so re-capitalize the system via money printing is at a high at present. Economic data for now seems benign lets say. Here the WF economic roundup for the last week. They have a positive bias towards the data they review but its nonetheless a useful report here:

WeeklyEconomicCommentary_29032013

Also in the quarter private investors have started coming back to the market as seen in the Lipper fund flow data, note, at the closing of  tired wave 5 move off the back of a 4yr 250% rally in equity indexes. The US consumer’s balance sheet wealth due to housing and stocks as been enhanced sufficiently that they are consuming again and running down savings (5yr low of 2.2% in Feb) to enable their consumption of consumer goods once more. (Although increasingly the US consumer is needing to use the reduced savings and debt servicing tail winds to purchase food and gas, note).

Such things as private investor confidence, record low savings, huge government deficits and large consumer debt to gdp ratios are usually timed with market tops. I would certainly not chase this market here and now but many private investors are it seems chased out of savings by negative interest rates created artificially by their governments.

Below a useful selection of euro sector indexes. Professional markets like the ones we have today dominated as they are by large institutional players demands that we look for the “wood in the trees”.  There are times when price momentum trading works and other times, such as these, where it is simply not enough as the professional conceal their capital moves by order book manipulation. We have to look inside the market at the intra or inter market to understand what is occurring. Here price analysis of the sectors can be useful as can market breadth ie how narrow or wide the market move is. The wider the more meaningful and the narrower the less likely it is to sustain.

 

In a fiat market, capital light, perpetual money supply growth system finance is all important as is housing and consumer consumption. So these sectors must be watched and the breadth within these sectors must also be tracked. (Of course the flip side of perpetual money supply growth systems is usually inflation and currency debasement. You cannot create more capital via debasement of your currency. Its a zero sum game in which all you achieve is the transference of wealth from one group to another).

Here a chart i’ve used more recently and referred to on the forum pages of this website. Its the Euro Health Care sector index which is almost entirely pharm cos. The sector has been one of the performers during this epic 4 year bull market. But as we can see one of the largest pharmas in the euro area has significantly under performed. This is unusual as the co in question, GSK is large. She obtains a quarter of her revenues (this sector growing rapidly) from emerging markets. She has some world leading consumer staple brands. Her R&D budget for new drugs is one of the largest in the world. She pays a large divi and enjoys good divi cover. She has increased divi payments for as long as i can remember above the rate of inflation. Her pipeline for the rest of 2013 and early 2014 is significant if successful. Of course if the pipeline uniformly fails her under performance will continue but this current breakdown in the correlation demonstrates much pessimism is priced in to the stock.

GSK is far from a ‘screaming’ buy especially as we are over bought on equities at present but on dips i would certainly be seeing to add. If GSK was a smaller pharma player of course the under performance could extend. Private investors always love to try and buy – beta, ‘fallen angel’ stocks which is usually a receipt for disaster as their capital sits in stocks that the insiders ignore waiting for the bounce that never comes. But GSK is not a smaller player. She is a huge player in the industry. If her sector under performance sustains, the management and all the R&D spend will have been in vain. This can occur especially in fast moving industries. E.g. Nokia in her fast growing consumer technology sector for one.  But its a reasonable trade to take as regards GSK as usually the correlation will, at least, revert or close the gap considerably to the mean unless something is seriously wrong in the co. The technical chart above. For disclosure i hold and added some more a few weeks ago.

 

Lastly above here the Euro telcos. FTE stands out, in my mind as a useful addition. Again not a screaming buy due to euro government interference issues but in a world of negative interest rates and great yield compression and optimism i find a lot of pessimism is priced into FTE and euro telcos. Assuming we don’t have a new k-wave spring at all and this is a false dawn then high yield consumer staple infrastructure type stocks are actually not a bad place to park some capital so long as they are as beaten up as many in this sector are.  I picked up FTE and the euro telco index off the lows a month or so ago.

Its been a reasonable Q1 but an under performance of my book to the trade weighted US index performance. We have seen a strong US$, strong US indexes, with new all time, nominal, highs. Inflation adjusted it all looks so different of course. Against this positive back drop we have seen weak  commodities, bullion and emerging markets. The combination has lead to me struggling to keep pace with the trade weighted US indexes as I spread my capital across world markets and instruments with a bias to the ‘inflationary’ scenario.

This bull market is in her wave 5 according to UBS which is associated with a narrowing of the rise in asset prices and sectors and stocks. This is text book so far so i’m relaxed on the ‘struggle’. I do hold some shorts on the US consumer as the sector and charts of specific issues are very extended. I’d mention the US maul owner reit Simon property here. Bring up her chart. Also SPF on the US index, the home builder. I am expecting Ben to be successful in creating another short lived housing bubble in the US but the market has likely got ahead of herself as can often occur. Tactical shorts. The US savings is back to historic lows and mortgage interest rates and high yield instruments are indicating higher rates not lower and their inverse correlation to equities is again non confirming at present. Indications of, at least, a pull back in this group soon. I remain light of shorts in general as per the comments re a lack of price indication that this narrow bull market wave 5 is done. As we comment week on week here there are more and more non confirmations of this wave 5. I’ll leave you with the complete breakdown, the first time in this entire 4yr rally, of the US high yield bond chart and the S&P500.

The two are positively correlated but recently have become inversely correlated. This is not a timing sell signal in itself but it is a clear indication that yields have compressed as far as they can go and the trend seems to have reversed. The US mortgage market, in spite of Ben’s aggressive and endless monetization of debt is showing the same characteristics, which is meaningful. I await clear price signals before getting aggressively short this market. We have dividend season in front of us for now so unlikely to get a market collapse here, for the moment.

I’m out of time for now so enjoy the holidays whatever you are up to. And see you bright and early next week.

All the best

Rich

 

Weekly Technical Comments – “Don’t Chase SP500 – 1538 Pivotal”

Apologies guys for the delay, i’ve been traveling today.

Below we have another outstanding technical run through of the world’s major markets and instruments.

I don’t want to repeat the Swiss team’s comments so therefore  i won’t cover the same ground but will try and add to their analysis below.

We are where we have been for several weeks but with added weakness in European indexes and the euro currency. We have a trend break for the crucial sxp7 (the euro banking index).  Autos, industrials and materials the Swiss team cover. The issues on the EM indexes continue demonstrating continued non confirmation and weakness.

Here the HK Index as just one example. She scored her high, like many EM indexes back in early Feb.

Its worth commenting that given the weakness if the US indexes sustain some sort of technical bounce is in order for many EM indexes but trend lines and key supports have broken so more weakness is very likely on US weakness.

Tech comments always useful on the Shanghai index here: http://www.stocktiming.com/Shanghai_Daily_Stock_Market_Updates/shanghai-index-update-monday.htm

The inverse relationship between Nik225 strength and jpy is still at extremes with the jpy gradually appearing to be a strengthening phase, which should be bearish nik225 stocks. High yield across the world is still relatively weak and commodities enough said. I could go on for quite some time on the international inter market instruments and indicators that are not showing a healthy bias to the US indexes. It seems anything to do with the real economy in the non US world is suffering. Capital that is flowing is generally moving into defensive stocks and or German bunds.

Meanwhile this US bull leg is continuing to drift higher albeit with increasing volatility and on an increasingly mono line and narrowing basis, as we have picked up some weeks ago. The mono line US divergence has gained relative strength buoyed by her macro data of increasing house prices, increasing consumer borrowing and reduced savings.  If the answer to sustainable GDP growth is consumer consumption via increasing balance sheet wealth from house and equity prices the US is in poll position to lead the world recovery onward.

Specifically, on the bull US case, we did score more strength and a higher high last Wednesday from the HGX (housing index) in the US.  This is a key indicator for the US consumer. For now the price signal remains bullish. US finance failed to score a higher higher last week. She is in distribution for the moment but no clear indication of weakness as yet. The semi conductors the Swiss have covered. They did not mention the US treasuries that have also scored a non confirming inverse with the equities. Ie just as inflation has increased this week and the sp500 has scored a higher high the treasuries have bounced up indicating renewed economic fears. We should expect to see the opposite occur. (10 year bunds also made a record high this week its worth noting, normally a bearish equities event).

A few shorts on selected weak sectors is just fine as is taking some profit off the table on performing cyclical stocks, in my opinion. But until we see a clear price signal of weakness in key US sectors like housing and finance we cannot increase any short allocation for the moment. The Swiss team remain bullish the bullion. There emergence from their slumber is long awaited. US housing and finance aside the fiat world doesn’t appear in great shape though technically there is little to support the bullish bullion case until some high price resistances are broken.

The right course of action, thus far, has been to retain the high yield large cap stocks as these have given capital growth and yielded an income. Rather than liquidating them ahead of this key dividend period adding short cyclical targets, as they show price evidence, remains the focus with fx the continuing beta enabler with the Aud showing some renewed strength again vs the US$.

Without more delay here the report:

Wk-tech-26-03-13

All the best

Rich

p.s. the Commerz bullion weekly tech report here below. They, like the Swiss team remain cautiously with a bullish bias on the asset class. I agree but the price action remains unconvincing for now.

BullionWeeklyTechnicals25032013

 

 

 

 

 

Weekly Technical Comments – “US Indexes Q1 Top Forming. HGX, EMs, Nik225 Topped Out, Sell Bounces”

Another solid report from the team in Switzerland covering the major sectors and indicators and price patterns once again.

Amongst the items a wave five top for end q1 looks increasingly likely but its possible that a new higher high can be formed as the distribution is not providing a classic signal yet. This is correct as regards my own price work, so far. We do have plenty of non confirmations coming through on the inter market side with the HGX continuing to fail to make a new high, as i’ve pointed out on the forum pages in the last week. (Also why i’m short some home builders as the smart money has not been chasing them higher in spite of the popular headlines. Always a contra sign of trouble ahead). The Em indexes and world index non confirmation of the higher high. And a technical sell signal break of price trend occurring on many of these em indexes. The break of price trend on the usdjpy also a kicking off a sell indicator on the usd vs jpy and therefore bearish on the nik225 as i picked up last Friday myself illustrating the inverse correlation between the two was at extremes and triggering my own sell on my own book of the j-reit asset class together with going long the jpy.

On the market breadth side of things we have yet another non confirmation and narrowing of the leaders. Despite last week’s new reaction high in the SP500, the breakout has not been confirmed by an expanding number of new 52-week highs. The market sentiment is once again at extremes as provided by the AAII and other sentiment surveys. They don’t pick up on the recent fund flow data but this does indicate PI entry into the market but no wash out from bond funds as yet. The positive recent shift into tracker index etfs a good indication of late speculation according to some market theorists.

As an aside the ‘fit’ to my own methodology continues to be excellent. The inter or intra market work i admire and am taking a stage further than the team themselves i believe. Its also worth mentioning, in my view, that the technical inter market price work of Stan Weinstein would also compliment perfectly the Swiss team’s approach adding to the mix specific stock instrument selection in the liquid US markets. Unfortunately his report is big money item retailing at circa $60,000 p.a.  Occasionally i do get a copy through. I’ll keep you posted when i do. His methodology can easily be copied subject to having the time to copy it, note.

Without more delay here the excellent Swiss report. We remain waiting for a pattern on the US indexes. The technical weakness grows louder every week but i’ve observed over the years that thin narrow trading indexes can display a habit of ‘drifting’ higher for extended periods against all your judgement. Patience is required picking off the weak inter market laggards as they fail tests along the way.

Wktech-19-03

Macro wise, the events in Cyprus we have picked up in the forum pages. They are meaningful in my view and part of the continued debasement of fiat money. All the major fiat currencies can no longer be used as an effective store of value this is clear. Following Hayek’s methodology we have increasing confirmation signals of the systemic breakdown. Law is becoming increasingly arbitrary, a key indicator according to Hayek of systemic failure. Confiscations and expropriations are increasing. There is no debt repudiation here yet, indeed the opposite has occurred in recent years so we can suppose the k-wave winter is still in her early stages. Nominal bubbles and subsequent bursting should increase in frequency as we step forward. Overall capital should continued to be destroyed through this process and living standards should therefore continue to fall. Against this negative overall back drop a great wealth will be transferred during this process  creating winners and losers along the way.

As capital holders we must do as Senholtz recommends.

‘When speculators anticipate more inflation and monetary
depreciation they endeavor to sell the depreciating currency
and buy goods or foreign exchange that do not depreciate. They are
preserving their working capital. Thus they are promoting their
own interests but also those of society, which benefits from the preservation of productive capital’.

Onwards and luck to all

Rich

 

Info Dump – Bullion Weekly Tech Report, WF Monthly Macro, Inverse Correlation JPY Nik225 at extremes.

A quick info dump here for all.

Here below the latest bullion tech. Having been asleep the bullion’s volatility is creeping up again as are her HUI miners. This makes me wake up again on the asset class.

BullionWeeklyTechnicals12032013

Here the below the latest WF monthly macro economic run through. Global macro remains very weak. US slow growth but how much is real growth is another matter.

WF-MonthlyEconomicOutlook_03132013

Here below SC’s market view from 5 days ago. Unusual for SC going long the industrial metals which until now they have been very under weight and avoided. They are also picking up on tech divergences and weakening momentum. Their have near term targets very close now.

SC-Weekly Market View – 2013 03 08

Here below a “home grown” proprietary chart i’ve been using as a key indicator on my j-reit trade. The JPY debasement theme was one of my 2012 key strategies. The trade occurred much later than i thought deep into q4 2012. I played it through the long j-reit trade borrowing the jpy to do so for much of the trade. Using the nik225 inverse correlation with the jpy as a key indicator i see divergence is at extreme. I’ve chose to book the positive beta (x2) of the j-reits at this point and go long jpy in the process as of today, last night’s Japanese trading session.  A return to the mean inverse correlation is a reasonable prediction and it could well occur on jpy strength and equity weakness which is the second reason for the exist from the asset class and long the currency. Time will tell as always. I want to repeat this trade though its + beta was seconded by the Japanese listed industrials, note.

 

 

Onwards we march..

Rich

Weekly Technical Comments – “SP500 Wave 5 Underway – Growing Tech Divergences”

The latest tech report from the Swiss team below.

Many of the comments echo my own thoughts from last Friday. We have growing technical divergences here. Many instruments and sectors are failing to confirm the recovery in the world economy that the all time record high on the Dow Jones and many other indexes is seeming to suggest.

The team suggest this is a clear indication that the wave 5 move is underway. Losing momentum, growing divergences and non-confirmations in more or less all technical indicators inc sentiment studies. The number of NYSE new highs is contracting, there is a classic divergence forming in the number of stocks that are trading above their relevant 20-day or 200-day moving averages. Inter-market wise we can see that economically sensitive commodities are not confirming the bullish momentum in US equities. Interestingly they also to the growing divergence between the SPX and high yield bonds. I could add much more evidence to this picture from fx currencies to em markets to sectoral non confirmation of the new highs.

There are always stocks that are going down and up in any market. In this market we have a large number going no where some rising and some falling. As the proportion rising narrows and the structure of the rally weakens it makes increasing sense to be adding shorts to balance up the long book. The HGX (US housing company index) has failed to confirm the breakout new highs. Many of her constituents are struggling. I hold some shorts in this sector. I don’t know what the pros have seen but the smart money is cycling out of US housing not chasing it higher. Sectoral issues like this remain immensely telling on the health of this 4 year old cyclical bull market.

The evidence of structural problems with this rally is mounting and not diminishing at present which the swiss team are also picking up loud and clear here. We must get dogmatic on things. We still have a pro market here. The new record highs have lead to a new wave of PI inflows of fresh sidelined capital.  The price evidence is that much of this is speculative capital ie momentum based and therefore highly concentrated in a few key sectors and issues. This is not structurally healthy but it can lead to a sustained narrow breakout.

Gold and the Japanese market are also picked up on. Positively for the bullion and negatively for the Japanese equities following their huge recent rally.

With out delay here the report.

Weeklytech12-03

All the best

Rich

 

 

Interim Personal Trading Update – “Risk On – Steady As She Goes” But The Asset Rally is Narrowing”

Its been a while since i completed a personal update. As we seem to have passed through the great distribution of the last 6 weeks, here below a quick run through of my own book, feelings, comments, analysis.  There is an emphasis, as always, to the future battles.

Things are good, life is good and we appear to be through the worst of the winter and spring, at least in northern Spain, is in the air. We even have new record highs for the Dow Jones 30 companies in the US which some are sighting as evidence of a new bull market for equities post their 13 year bear hibernation. The issue, of course, is, as always in this fiat currency world, the nominal rise vs the real rise. (In the new hedonic and substitiution adjusted statistic world the gap between the nominal and real realities are even more complex).

The Inflation adjusted, Dow index look somewhat different i note.

 

As we look around these indexes, sectors and individual instruments its worth noting that this recent risk on move has narrowed. EMs aren’t joining, the usd isn’t confirming, commodities are not joining, neither are the commodity currencies and neither is the euro. Materials, industrials, semi conductors are not playing in the great reflation game as yet. This is a narrower strong usd ‘risk on’ move as the US once again becomes the single engine of growth and the great US consumer consumes once again. (Albeit this time at a much higher level of debt to income and at close to record low savings rates. A completely different starting point that earlier ‘recovery cycles’. And also as real incomes continue their decline. Note).

As we know, timing is everything. As long time readers of this site, and prior sites, know, I’ve been long equities for the last 4 years and in the last 2 years heavily long with leverage for both the yield and capital appreciation via listed securities across the world’s major markets. The central banks have seriously debased their currencies vs assets engineering asset prices to rise. Clearly, this has provided great relief to the banking sector and their over extended balance sheets. Personally, FX has boosted returns and been kind in the last few years as has the bullion though not the bullion miners and or commodity sectors which has been in cyclical bear market for the last 18 months or so. Vs cash and even now bonds equities have been the asset class of choice over this last 4 years.

This is all in the past so i won’t dwell any more on these historic elements. We are where we are now. Lets deal with the specifics of the future now not the vagaries of  either the ‘fish that got away’ nor the glories of past endeavors.

I entered this year with a great concern, as i published at the turn of the year, on fx side of things. I commented that i suspected it would be a difficult year on fx to navigate.

I thought the two fx currencies that seemed to offer the most were the gbp and jpy. And thus far it is playing out as i thought – tricky.

The gbp debasement has been swift and painful for those holding uk assets with uk cash. For those borrowing the uk cash to fund uk longs its been a golden time and like wise jpy assets. For my own book, jan was good and correct on both ie carry trade on both to fund the longs on equities in both domains. As jan turned to feb i took the over sold levels to fully fund the longs in Japan and the UK. The UK equities at least are international in flavor so any GBP debasement is naturally partially offset but the J-reit listings are a pure domestic Japan play and so are exposed to the full jpy debasement issue.

On this basis, I even considered letting a few longs go on the nikkie but held back and fortunately so as it turns out, thus far. Although i would comment here that the j-reits appear to topped out, at least for now. Which could be a sign the winder Japanese market is starting to run out of gas and is in an intermediate topping phase. Certainly the asian markets in general remain weak and are badly under performing western markets. If you trade weight them – badly under performing!

So, more importantly, where next? Forward, forward. For we are only as good as our next year.

I have to say, given the general euphoria (or is it free money induced greed!) i do think Asia looks relatively cheap, trade weighted even cheaper and the euro looks too cheap vs the usd given the ecb’s tight money policy and spread on the over night to the USD.

What of the gbp? The boe held her nerve this week, which is good. The gbp has run down a long long way. The equity indexes look to have a continued bid here from positive fund flows and so the usd safe heaven move that i suspected would come appears not to be in motion. Note the TLH has sunk back down and appears to be making a lower low. Indicator indeed of risk on.

So gbp vs usd i think we have support here and i’m expecting a little bounce. Note a little bounce! Sell into the bounce would be wise!! IMO.

EurGBP – Im not happy on this pair at all here. I see the breakout euro and ok she hasn’t formed a higher high but she is strong. And strong at a breakout level. Like wise can be said gbpusd but note the usd does not have a 12 yr secular bull vs the gbp as does the euro.

So of the two pairs the euro offers more upside that does the usd, for the moment in this on risk market.

There fore im concerned again. What to do? And its tricky here i must say on this pair. The gbp is confounding me at present and this is frankly annoying. I’d like to see direction even if it comes with crisis to be clear.

In times like these when no clear trade offers herself its best not to second guess and go as neutral as possible on the pair. I knew this year would be tricky or at least h1 on the major fx pairs and so no surprises i guess. Problem is that doesn’t assist with the bottom line. FX had been a positive tail wind to my account over the last few years. The loss of the tail wind (and partial head wind in feb due to the gbp weakness in the main) of fx and the loss of the tail wind of the bullion is having her effect on the bottom line which in feb and now the first week of march has flat lined as the wider market has performed.

So im not sure im really assisting here. Im running the book as it was with an added emphasis on acquiring short target stocks within weak sectors or under performing sectors in dm markets. Im doing this as a long equity hedge and as a way to keep down borrowing costs given the leverage to the long side.

Overall, a reasonable start to the year. Under performance which is bad but a recognition, as above, that the fx and bullion has been tricky and this has been the problem. Clarity will come on these areas im sure so im unconcerned as yet.

A few what ifs?

What if the market turned quickly due to some unforeseen geo-politic event. Iran, South China Sea. Middle East, etc?

More USD strength with strong bullion. Risk off and equities down. Cut leverage.

That wouldn’t be a pretty event for the bottom line. Especially if the already strong usd really surged which it could well do on hard risk off.  This is partly why i really want to pick up short target stocks in usd listings. Im borrowing usds at present. Id prefer to be even weight so short sale stocks would even weight the fx which would be good. The carefully selected short stocks would also help on this event risk issue even if in the mean time they flat line. Flat lining as the market runs up here on the short book would be fantastic due to the mitigation of risk element and long usd issue.

What else? This Em weakness is not good. Really animal spirits? Or simply asset price inflation? Imo this is totally deja vu here. The sustained em weakness is not a good indicator. From Brazil to Shanghai things are not right here. How can this be a Renaissance in the west and a decline in the EMs? The only way that is possible is:

1) that a structural re-balance has occurred – we know that is not the case.. or:

2) That we have another pump up in the monetary side of asset prices leading to more consumption in the short term. All the data is suggesting this with trade balances weakening again and savings in decline and debt increasing again in DMs.

Overall, that’s a disaster in the medium and long term, for the west.

How can we predict the turn? Usually toward the middle/end of the pump up the capital starts flowing east again and very rapidly so. So the ems should rise again but as a lagging effect to the west’s money induced rally. Lets look for the topping out, not on em pmi’s but on western pmi’s as well as negative savings rates and widening negative trade balances, again.

Big picture stuff. The history suggests the cycles should hasten in speed. That, in effect, we are experiencing a 4 season intra cycle within the autumn/winter k-wave. With each turn of these cycles induced by the neo keynes arrogance capital will destroyed and the seeds of great inflation will be sown. Participants are seeing the pattern. They are internalizing the sequences of events on asset prices and sectors. This is very bad and suggests the speed of the cycles will greatly increase as money and or capital velocity increases.

Ask yourself; on this wave will capital sit in bonds for 5 years and a 250% equity move before it belatedly enters equity? I don’t think so as capital holders will have seen the neo keynes play book.

This is the problem and is why inflation should pyramid up in the coming years as the play book is known to all. Or rather know to those that care to examine these things.

So back to it. The summary priorities.

1) FX – major g7 pairs tricky overall.

i)GBP bounce but an opportunity to unwind the GBP cash position.
ii) Euro relative strength so long as the on risk story holds.
iii) Cad, nok, aud interesting again given the usd run up, at least as bounce candidates for q2 so long as the on risk story holds or at least flat lines.

2) Short selection stocks to mitigate risk and reduce interest costs – a work in progress.Watch those sector indexes and back to basics in terms of running the ruler over balance sheets to select individual targets.

What else to say other than repeat the age old wisdom’s from past masters in capital markets. If you are not feeling the feel good eurphoria on your own book don’t get frustrated and be “jerked” into making a fast allocation.

“Its a marathon guys not a spring” or “Its an all you can eat buffet”.

Nothing on the macro side of things has changed. Its pure text book stuff thus far. In the big picture its noise really.Inflation adjusted the secular bear is alive and well. Remember this clearly.

The neo keynes are in big mess of their own making. No data points or price action has invalidated this yet.

Below a chart blitz from the last two weeks of postings on the forum pages. I’ve been slightly purposefully holding back on posting too much to the latest news area of the website as this site is all about sharing information and semi pro PIS working together collectively for the greater good. That’s what this site is about. Its not about me and my own book. Its about us and that’s a great and powerful thing in my view.

Greatest respect to all. Lets pick up any issues comments on the forum pages.

Before I forget a timely reminder from the good Doctor today echoing Drukenmillar’s recent comments that we have picked up in the forum pages.

“Druckenmiller is “a very thoughtful person, and I share his views. It will end badly. But unlike Stan, I believe it will end badly this year,”

Dr Marc Faber March 2013.

All the best guys

Rich

Here below some charts and data from the last few weeks in no particular order:

wf-sequestration

 

 

 

Oil Price not confirming the improving economy but it is confirming the weakness in materials, industrials and semi conductors. Ie is the real economy improving at all? Spring k-wave theory suggests the spring phase can experience subdued commodity inflation as investment pours into production and keeps a lid on prices as productivity soars. But, as we saw this week productivity is at a 5 year low in the US. Is the dow transport improvement and truck tonnage growth a sign of debt (and lower savings) induced consumption or real spring investment?

If I’m correct and this is a debt and money printing induced false spring then commodity prices should soon spiral upwards again not due to demand but due to a hot money chasing real assets to avoid debasement as the real economy falls off a cliff.

1986 to 1987 sp500.

 


 


 

UBS-feb13-Monthly

 

Weekly Technical Comments – “Distributive S&P500 1560/1570 into March”

The Swiss team publishing there weekly tech call. They don’t see much upside here and are sticking to the pro risk commodity call (from at least a bounce perspective).

There is much to say here and now and not only from a technical perspective but also how the developing technical picture as well as fund flow data is playing into to a crystal clear macro picture. But I’m caught for time right now as I’m heading back to the city having been in the mountains for the last 10 days or so.

I will update the post later today or early tomorrow.

Here their report:Wktech-05-03

 

All the best

Rich

 

 

Weekly Technical Comments – “Risk Vunerable”

Its Tuesday so time for the Swiss Tech team’s view and analysis.

They are pretty much where they have been for the last few weeks with added inter market weakness coming from the EM indexes and the DAX, lead cyclical indexes, note. Inside this auto weakness, chemical, finance and euro oil and gas divergence from the US oil and gas sector strength and breakout worthy of comment. Lead US indexes continue without a narrow tight upper trend hugging range. No clear evidence to suggest now is the time to short but this is a system issue of how you run your own book and risk, in my view.

Risks remain clear here and consistent with a weaker technical picture. No knock out price punch is showing here as yet so we are waiting for that before being more aggressive. In addition some more positive comments for gold bugs from the technical team. We are looking for capitulation once again on the bullion it seems.

Here the report:

Weekly19-02

Luck to all.

Rich