After a two week vacation the Swiss technical team are back on duty and although reporting over bought conditions for risk assets are seeing any pull backs as top up opportunities. Indeed their analysis across fx and individual asset classes is super bullish, a Q4 pull back aside. Ill update this note later when i’ve had a chance to digest their comments.
Without further delay here the report.
All the best
Rich
Ive been following SC’s (high net worth private client) wealth management weekly report for a while. To my mind its been accurate and timely in its recommendations and insights. It nicely brings together the key fundamental and technical strands of world asset markets, monetary and fiscal policy all in one weekly report.
The ECB’s unlimited actions, albeit with conditions, is super important for world asset markets and particularly the European financial sectors. As i picked on the forum pages, immediately on the live stream of the ECB yesterday SC also picks up on here..
“most important component of the program, in our view, is the fact that ECB purchases could be potentially unlimited, and do not hold seniority to any other bond holders”. SC – sept12
Onwards we march and all eyes to the FED to introduce yet more monetary ‘non standard’ measures next week in their attempt to monetize debts. China over night expanded their own fiscal stimulus program as Brazil did last week. The BOJ made yet more noises to take more dramatic actions of their own a few days ago. To ignore all these fiscal and monetary moves would be very unwise in my opinion. We are moving to a highly expansionary monetary strategy across the world which has significant fund allocation implications.
In terms of my own book i expanded balance sheet significantly heading into this period. The moves in risk assets have been immense but fund flows remain negative. I read all this as hugely bullish but as an “inflationist” i could be biased. In SC’s report from last week i see this chart as follows as being hugely important.
This chart above confirms to me that central bankers and policy makers are together working hard to embed positive inflation into the system once again. Each new monetary event occurs at a higher nominal level of inflation. We are still at an early stage but this chart is a exponential chart not linear note. Ie the early moves look small but over time its the compounding that kills you. This fits the text book theories perfectly and what is what we expect to see from neo Keynesian policy makers. Neo Keynesian’s have done away with old Keynesian views that government’s fiscal plans must counter balance economic cycles. Contemporary Keynesians believe perpetual deficits are not a problem so long as spare capacity exists. And furthermore public deficits are irrelevant to rich developed world economies as monetary measures can and should be taken to stimulate demand if public deficits are high.
Neo Keynesians aside, simply put, policy makers are seeking to correct the debt levels relatively via inflation. Ie debts can increase but so long as gdp expands nominally (via inflation) at a faster rate than the debts then debt will relatively decline to gdp. For this strategy to work nominal inflation must rise above the rate at which debt is increasing and at present it is not and is a long way from the mark to make this occur. Monetizing debts is an obvious and highly inflationary way to make sure this occurs.
Those that understand the “nuts and bolts” of how these systems work will likely do ok in the coming years, luck or rather bad luck aside. Those that are ignorant of these issues are likely to see their incomes and wealth be significantly eroded via inflation, rising tax burdens, fiscal expropriations, capital controls and much violent swings in the boom and bust economic policies Keynesian’s create.
One way or another the books of the consumer and governments must be balanced. Inflation or the debasement of developed world currencies is clearly the strategy to be adopted in the coming decade. Nominally this implies a golden period for risk assets although clearly volatility should be high due to geopolitical issues and spikes in inflation. The trend is clear although the oscillations we will have to manage as and when they occur.
Here the report.
Have a great weekend all.
Rich
The German team have thrown in the towel and have now turned bullish on the precious metals ‘pms’. They did so with great fan fair but their medium term model seems to have been over turned right across the precious metal complex. I’ll leave the detail of their report to them to explain.
I’m personally more interested in where this leaves participants at present. This beating of the bear case is very positive in several ways that i’ll run through quickly here.
Many participants have got this wrong and expected a continuation of the last year’s bear market in the ‘pms’. Many were sitting in short trades and or added to short trades at the resistances. Many are very light the asset class expecting to have been able to accumulate at lower levels. The market has moved in the opposite direction so these participants are under performing and or on the wrong side of the trade. We all know too well ‘from failed moves come fast moves’. In my view this recent move in gold is akin to a failed continuation of the recent bear leg. We have a breakout here and many on the side lines in what are generally thin markets. These participants are late to the trade now in what is not a crowded trade. In my opinion this all bodes very well for the ‘pms’. I believe they can enjoy an extended run here. Lets see. We don’t want to see a sharp reversal and last ditch attempt to reverse this recent bull leg.
On the miners, they have yet to breakout convincingly here. Once again they are under performing their underlying metals. The breakouts are very close at hand however. The HUI and Silver miners index are on the verge of a breakout.
Here the HUI (not the gdx)
And here SIL (silver miners etf)
This is also a very interesting trade as their continue to be large short positions in these miners.
Here, Hecla mining’s short interest, as one example, where over 10% of the stock is borrowed.. Or more than twice the average daily volumes. And that’s an important metric to look at as these not hugely liquid stocks. Iliquidity is a shorter’s worst nightmare:
http://www.nasdaq.com/symbol/hl/short-interest
A short squeeze on the breakout of these indexes would be a pivotal signal to go long and further expand the balance sheet.
Without further delay here the report:
All the best
Rich
The German team stick to their preference for the medium term bearish trend to resume soon enough but they remain officially neutral open to both a northward and southward breaks of key levels. Their short term call is a mild retracement of the recent bullish moves. Like everyone else they are fence sitting here and we stand at a key potential breakout or breakdown point for all sorts of asset classes and instruments. We have the Fed tomorrow and the ECB on the 6th of Sept. Here the report which was actually released early this week? The timing of the releases of these bullion reports is a little more erratic than the Swiss team’s report. These things are out of my control but apologies nonetheless.
The German team are shifting their technical stance but are not willing to go bullish yet.
Below 1700 US$ gold price they remain of the view that this move could simply be a false rally and the whole move could reverse in the next two weeks especially as we are still in Aug. A move above 1700 would radically change their view however and open the door to 1791. 31.97 remains the cap on the silver price technically. Above 32.60 would invite 33.41 as the next target. The gold silver ratio has declined with 54 (200 day ma) likely to hold in their view.
Note their medium term view is in danger of being over turned here. If the recent trends sustain and the technical move scores a visual breakout and price continues to climb above her 200 day ma they will have to do reverse their technical models. They are neutral at present with a wait and see view that the recent move may still reverse in the next two weeks. Lets see.
I’m long across multi instruments and I’m staying long for now.
Here their report released earlier today.
Rich
This week’s report from the Swiss team follows on from last week’s whereby they are shifting their medium term technical projections towards a bullish scenario. They have moved back their timeline to mid end Sept for a correction. They now expect 1422 to be broken to the upside in the near term. They state an important top is in place on the fixed income treasuries which has important fund flow implications. They have become bullish material stocks and precious metals restating the recent breakouts and out performance within these sectors. I’ll leave all the inter-market analysis to the document below.The markets are starting to discount further central bank monetizations. If they disappoint this bullish technical picture could easily still reverse although the multi asset, cross boarder asset charts are all pointing to front running by insiders rather than a fake move. Things have moved on technically in the last 2 weeks. If the moves are real and supported soon by forthcoming monetary actions asset prices have a long way to run from this point minor set backs aside.
All the best
Rich
The German team re-affirm their bearish analysis of last week. They remain wedded to the view that gold will see a swift decline by the end of August. A break of the long term uptrend line at 1572 currently must be achieved to provide momentum to the move. They repeat the 1325 target with 1299 as the base support area. Silver remains sidelined in their view but could soon retest the 28.41/49 resistance zone.
Its a good technical report in my opinion. I remain bullish the precious metals but if the ECB is not forthcoming soon the window for intervension will close and a deleverging event on a global scale will ensue. Therefore i’m maintaning my longs with a little leverage for now. Those long are in good company with both Paulson and Soros recently increasing their long positions to the precious metals. We could also add David Einhorn to this club of gold bulls as his latest Q2 letter to shareholders confirmed.
I hate to repeat the ‘make or break’ line again but we are at a critical moment in asset markets here is my view. An inflection point for all sorts of asset classes. Chose a side or go even but whatever strategy you chose here be prepared to reverse and go with the money flow as, in theory, the move in either direction will be large and something not to be missed.
Here the full report care of the German team:
The Swiss team have stepped back from their 1200 spx target for later this year. Near term they expect a pull back due to over bought conditions. On the medium term they continue to expect a more significant correction in the indexes of 5 to 8%. The recent sector rotation is a positive signal though it is mixed with a continuation of a decline in market breadth. The new 52-week highs have been further contracting. They recommend taking some profits in the defenses and moving into SOX(semiconductors) and Materials sectors as two examples. They do acknowledge the risk of a failed breakout or bull trap especially in view of their forecast for a renewal in strength of the US$. They acknowledge a wide ranging market is possible in the coming weeks.
For my mind we have macro and micro confusion here and now. The markets look unlikely to crack given the Draghi put continues to be in play for the moment. However, should the euro zone disappoint as they have done so often, its hard to envisage this current strength will hold for very long. The Shanghai remains very weak but everyone and their dog are watching her for any indication that she may be forming a base here.
http://www.stocktiming.com/Shanghai_Daily_Stock_Market_Updates/shanghai-index-update-monday.htm
Cyclical stocks and miners are clearly being driven by the events on the Shanghai and her macro news flow. Positive monetary news flow in respect of any of the major economies would greatly assist indexes and aid the rotation as indicated by the Swiss team. The precious metals are still range bound. Stop hunting on either side the name of game at present. The Hui and her miners flirting with the breakout which would be bullish but given the US$ strength forecasts coming through the phrase ‘bull trap’ seems a potentially useful one to remember until we get a clear signal here. We are also still in August and the season for stop hunting therefore. Keep the deal sizes small, take profits and don’t get too excited by moves in either direction on any instruments would be my general comment.
Luck to all
Rich
Ive been following these guys for the last few months on the bullion or precious metals. Credit where it is due. The German bullion team have done a good job over the last few months and so i’ll be posting their weekly technical view of the bullion markets, for a trial period at first to see if they become a regular here.
They have been bearish from the 2011 high and correctly so. I’ll be clear here up front that this latest report is also a little bearish. But as Faber advises. (Im paraphrasing).
“Always takee time to read those reports that take the other side of your own position to explore whether you have missed something”.
I agree with this view 100%. (Especially where the analysis team has scored some successes as these guys recently have)!
In my view, the validity of technical reports are not a question of correctly calling future price moves. Its more a case of, do you have model that calls out the levels correctly. And are you able to adjust your models to accomodate unexpected movements to capture the failed levels or breakouts etc. If they fail to adjust their model and dont convince us ill be quick to take their weekly report off the site and find a better report.
This week, apologies a few days delayed as i was reviewing whether to make their report a regular, the Germans call a continuation of the short term range before an end of August and Sept resumption of the bullion bear with 1325 (gold) in their line of sight. They are considerably more bullish euro gold (XAD5) with a breakout of the 2011 high in line of sight. You can conclude from this that they anticipate a continuation of the euro decline vs the US$. This bearishness steps across all the bullion markets of Silver, Plat and Palladium. They forecast more weakness to come.
Having fished around the bank’s other research teams I see they are bearish on the macro front. Macro wise, they are expecting a strong US$ and a continuation of global deleveraging. They see no short term successful monetization by the ECB or any other central bank pre US elections.
If monetary events play out the way the Germans expect then i would accept their technical view even accepting the seasonal September up draft.
On the gold silver ratio the 60 level is in line of sight and a continuation of the current trend is likely in their opinion.
I remain long the core and ive recently added leverage via futures, options and increased cash holdings of pms and their miners. “make or break’ is a good phrase accross multiple market asset classes right now. Bullion is no exception.
Lastly, if i could mention one thing, very briefly. Monolithic trading approaches are always the most dangerous of market approaches. The most consistently high achieving investors and traders accept that no one can predict the future and its timing. Trading approaches that accept the chaos of world events and capitalize on its unpredictablility out perform.
As Soros wisely said:
“Success in the investment world is not about right or wrong but simply making sure your winners make you more than your losers cost you”.
I’ll leave those wise words with you and sign off. I hope you enjoy the regular report.
Com-BullWeeklyTechnicals-08aug12
All the best
Rich
We remain at the cross roads and to steal the line from UBS a “make or break” moment in world asset markets.
So lets use the time to reconsider where we are fundamentally here. In my view the fundamentals are finally in line with the techncials albeut at a higher nominal level than i would at first anticipate (though money printing plays these nominal tricks on us and we must remember this fact!).
The US economic data continues to show great resiliance though this remains the weakest recovery i have ever witnessed. The world economic numbers continue to weaken. The world’s central banks remain the only show in town.
Here the WF monthly review and comments:
And here a useful report released yesterday by WF on the all important US housing market.
And here the brilliant David Einhorn’s Q2 letter to shareholders. I always monitor this guy as he has made some genius calls over the last few years. He is always worth listening to and the recent Green Mountain Coffee call was typical Einhorn at his best.
Greenlight-Q2-Letter-to-Investors
You will see he is struggling in 2012 thus far recording 3.4% or so by end Q2. He is at a disadvantage as he has to move huge lumps of cash around. It is very hard for him to conceal his positions and thus it is that these large funds often underperform the indexes. In spite of his liquidity handicap he is a star performer and should be watched in my view.
I highlight his last para here:
At quarter end, the largest disclosed long positions in the Partnerships were Apple, General
Motors, gold, Marvell Technology Group and Seagate Technology. The Partnerships had an
average exposure of 107% long and 56% short.
“All things excellent are as difficult as they are rare.” Baruch Spinoza
Luck to all
Rich
As I suspected the Swiss team are very much where they were a week ago. Insufficient levels have really be broken here. This should come as no surprise until one of the major central banks takes meaningful monetary action. The technicals are confirming the fundamentals of where we are at present. Its a case of no one can commit directionally until a central bank acts.
On the positive side they sight the price action in gold (1630 key), silver (28.30 key), platinum and the recent action in the Shanghai.
I’d supplement these comments on the Shanghai action with the excellent technical team in the region:
http://www.stocktiming.com/Shanghai_Daily_Stock_Market_Updates/shanghai-index-update-monday.htm
The implications for the industrial sector are clear if the Shanghai has formed a major base.
The US finance sector indexs look more positive to me that the Swiss team indicate. The Euro finance sector at a key res as they point out.
They are bullish the US$ and bearish euro and yet they are bullish material stocks and the reflation trade. I find this correlation hard to imagine as being sustainable. If the ECB monetizes the euro should be supported. The DX should decline in value especially vs cad, aud, etc if this occurs. For the dollar to rise meaningfully a deflationary scenario would have to be in play. The Shanghai would reverse and the up move fail. The supports listed on copper etc would give and the world would quickly enter a deleveraging scenario on a meaningful basis. Central banks would react but not before a major market move occured, imo.
Anyway, here the report.
I agree we are at key levels on all sorts of instruments. All eyes to the ECB. And we need to carefully understand the detail of what the ECB and ESM do. The initial reaction could easily occur in the wrong direction but the devil will be in the detail.
All the best and careful trading out there.
Rich
p.s. A comment on the ftse. The ftse is a materials and financial index listed in gbps. A combination of a weak domestic economy but inflationary (ie lose monetary world wide enviroment) as well as a meaningful Shaghai bounce would set the ftse on fire to the upside. Im not saying this will occur here im merely pointing out that as a tracker for the inflation play the ftse100 is a very good instrument to play it with leverage. Good liquidity and plenty of instrument choice. Achieving a good return in this game is a great deal about chosing the right tool for the job at the right time. The ftse at this make or break moment can provide the beta in both directions but due to the local currency debasement and domeestic weakness especially so to the upside! I’ll happily continue this specific discussion on the forum pages.
As we sit here waiting for central action, or not, technical indicators are demonstrating significant moves in either direction.
The Swiss team are using the “make or break” term here and now. I’ll leave all the detail on levels and various asset classes to the report. They do an excellent job of summing up things in my opinion. I cant disagree with this report in any way in fact. From the US indexes to the Shanghai and cylical mining stocks to industrial metals and the eurusd. Their analysis on gold – ‘buy weakness’ and I agree and have started the process myself to step up my allocation again.
Monetization will come. It has to come as the alternative is unimaginable. The issue is whether we get a crash prior to the ‘great’ monetization or not? We are on a knife edge so run the longs but buy some protecting hedges where you see value is my play. Buy put options on indexs or buy vix calls or sell call options out of the money on stocks you hold. And go equal weight currencies for now. Until we get direction take the sting out of the move that is about to occur. Thats my call at this moment in time. We await the central bank news flow.
Luck to all and safe trading and investing out there.
Here the report: Weekly31-07
And I”ll leave the final comment to the wire at Deutscheborse, from a few minutes ago..
The markets have got ahead of themselves thinking the deal was done for ECB monetization. Perhaps it is and insiders are front running the issue but as private investors its better to wait. Lets see the money on the table. The promise of money from euroland is no longer enough. In my opinion.
Rich