Weekly Technical Comments – “Bounce Remains Intact 1325 Key”

The Swiss team publish another excellent report. We all know the key levels by now by heart.

Of note the AAII bullish consensus at contrarian levels. Interestingly, they also note the euro bounce possibility but ref the low volatility in the pair eurusd. I second this although this is in great fault down to the German team who last week scuppered every northward attempt by the euro buyers. From failed moves come fast moves i know but the thrust northward was blunted immediately by rumour and quote news flow so the euro continues to drift ever downward.  No clear ending in sight just the knowledge than positive news flow would provoke a very decent technical bounce. Its a tricky area therefore to go short or long euro wise, for the moment.

Finally they sight continued commodity weakness as the most likely course. Without any further delay, here the report. Sumer silly season is upon us remember.

Weekly24-07

Rich

 

 

 

Weekly Technical Comments – “Near term, 1325 The Ultimate Trigger To Go Short”

A very interesting report this week from the Swiss boys. This is all entirely consistent with low volume summer trading is my own view. How many times have we been here before? Too many is the answer.  I wouldn’t chase any trends right now. The technical and fundamental emphasis remains to the downside unless meaningful monetary action is forthcoming, which it is not at present. (Bernake’s chat a little later today aside).

Technically the low volume Friday move was nonetheless indicative of sufficient strength to question the whole end of July weakness scenario that the Swiss team had been predicting. They have therefore ammended their view. They suggest now that if the 1325 level can hold that this corrective move could last longer than anticipated up to a retest of the 1375 level sp500.

The longer term technical perspective is pretty bleak which they run through. They very much stick to their guns, given the Shanghai, DX etc, that a retest of the 1200 level sp500 in Q3 Q4 of this year is the most likely event, which i would concur with subject to massive monetization news if when.

I wouldnt get too carried away by any instrument at present, softs included. Keep bargain sizes small, scalp ranges and keep it tight. Thats my two pennies. Without more waffle – here the report:

Weekly17-07

All the best Rich

P.S. What we already know in essence.. The fund flows remain toward risk off with the short end going negative and capital inflows to the US bond market.. Couple of reports.. first from Lipper published June 19th and secondly WF published today on the international aspect of the flows.Capital inflows toward fixed income does the same job of qe lowering fixed income returns whilst providing liquidity to US corporate debt etc. These fund flows do not provide a short term great environment for risk assets as they reduce the need for Ben’s helicopter. We shouldnt be too surprised by his comments today.

fundflows-june

wf-fundflows-may

Weekly Technical Comments – “Use Strength to Sell”

A facinating report from the Swiss Team this week. They are sticking to their guns that this rally is purely corrective and that July will produce much weakness in the major indexes. I must say, this sits quite nicely with the way i see things as well. SP500 rally to between 1370 to 1390 cash they see as the near term likely top area of the chart.  In spite of Friday’s strong action they expect the dollar rally to sustain and commodities to extend a basing period with a final 5th wave lower before the CRB turns.

Anyway with any further delay here the report:Weekly03-07

Rich

 

Weekly Technical Comments – “Risk Vunerable into July”

A much wider report from the Swiss team this week. They cover more instruments inc gold, the US$ and equities. They are still looking for another leg down, at least in equities but likely all risk asset classes. They remain bullish thereafter especially on commodities.

Here the report: Weekly26-06

They could well be right but in my mind policy action will likely define the near term bottom rather than any technical view. Getting ahead of price and buying risk assets on the Swiss team’s spx target being reached is a dangerous game to play with leverage and in the absense of a significant policy response. Caution the watch word. Lets see where this coming down leg takes us and then consider options would be my call.

All the best

Rich

Weekly Economic Indicator Review..

Here the regular weekly economic indicator report by WF.

WFWeeklyEconomicCommentary-220612

 

And something below, i found of interest.. student loan data. By hook or by crook money supply must grow in a fiat money system.And note this is now a world wide developed world trend. That is, health, education, heating, water costs that were traditionally born by the welfare state system are being transferred to a system of being funded by debt. This is a clever policy move as it reduces public sector costs in the short run. It transfers the cost to debt which effectively leverages the balance sheet and, in so doing, expands money supply. Of course the problem comes when the money is to be paid back. But will this capital ever be paid back? I very much doubt it. In the the fiat system of debt the capital is seldom ever paid back and it doesnt need to. All that is occuring is the transferance of public sector debt to private sector debt. When the debt cannot be paid back it can always be written off by the public sector finance co guaranteed cos. Or, even better, bailed out by central banks who own a printing press so dont have to book the bailout costs as a bad debt. It all makes sense in the ponzi fiat system that we have, at present, in the west. Its a hugely corrupt system which we cannot change. Better to accept this system, understand it and capitalise from it. That is all the individual can do.

Here the report from WF:

StudentLoanDebtMarket23-06-12

What was telling in my opinion last week was the large revisions to the downside by the Fed. They reduced economic growth forecasts and, significantly, reduced their unemployment forecasts for rates to remain at around the 8% for the remainder of 2012. In spite of this bleak economic revision to the downside policy reaction was not expansionary. This presents a giant mismatch of policy vs the data which is immensly positive US$ and ‘off risk’. This comes at a time when the short end is already nominally negative and in real terms strongly negative. In short, a highly deflationary cocktail of deleveraging. Have policy makers completely misjudged things? or do they only feel empowered to act to prevent collapses? We cannot know the anwsers to these questions but the data is weak and weakening and the existing policy response likely to be insufficient.

 

Three Telling Technical Charts..

 

First up the US$ index. Her up trend is clearly intact and has much room to run. “Operation Twist” is an attempt to flatten the yield curve, only. It has no net positive money supply implications. The Fed statement was therefore supportive of ‘risk off’ and repatriation of US$ which is should continue to drive this strong technical chart forward. Such a continuation has meaningful implications for other asset classes, of course.

Here the largest component of the dollar index.. namely the eurusd pair.


On almost every time frame the technical chart is disasterous with bounces now weak and weakening. It appears market participants are increasingly impatient with supporting the euro. Policy response has been a shambles. There is a significant long term support at 1.18 to the usd. This is likely to be tested over the summer months without meaninful intevension by central banks and or policy makers.

Completing the trio of charts. The CRB or Commodity Index.

 

The april 2011 bear continues to bite the commodity index. Indeed the latest bounce has been the weakest for some time and yesterday’s sell off came off a fairly oversold level. There is great weakness therefore in the commodity space. The US$ index is telling as is the ever disappointing industrial numbers that flow through month on month. Emerging markets have room to stimulate their economies but the money flow remains firmly out of commodities. From the longer term perspective the 2011 peak was a full 25% lower than the prior 2008 peak. Many commentators are calling for the cycle top on commodities off the evidence of price. Oil is below $80 and nymex copper approaching $3 again. Soft commodities are better but even many soft commodity trends are being threatened. The natural gas glut has desimated coal and further out (5 years) may impact oil prices.

Bottom line. The trio of charts are confirming what we already know. The world economy is starting to roll over yet again. Without more monetary stimulus (money printing) price levels will fall. Asset prices will fall, balancesheets will weaken, banks will once again become insolvent and government tax revenues will fall off a cliff. The downside is immense due to the amount of leverage and limited capital in the western system. Imo, the technical charts point to what should logically occur if the market were left to her own devices. Namely debt would be purged from the system. Policy makers are unlikely to let this occur so the investor, and or trader, is left looking for moments of extreme weakness in asset prices that prompt (kick) policy makers into taking action. This leads to hard and fast reversals of the ‘natural’ chart direction and patterns. Reversals are always rapid as the money flows reverse en mass, on a dime.  We can expect immense volatility therefore as participants are wrong footed by policy makers vs the “natural” flows, again and again. Liquidity is key. Capital controls in this environment would be immensely damaging, note!

For the moment the window of policy action has passed so we have more weakness to come is what price technicals and the fundamentals suggest. Investor sentiment surveys do not suggest out right bearishness so the market has plenty of room to the downside here is my technical view. UBS for their part have flagged the 1330 price level on the sp500 as important. We are below this now so, for the moment, in the absence of meaningful policy measures, the pressure remains to the downside.

Of course, the usual warnings apply, its your capital, only you can decide where best to place it.

All the best

Rich

Weekly Technical Comments – Repeat “Do Not Chase The Market”

The Swiss team once again repeating the ‘don’t chase this rally’ line. The technical weakness remains with more issues than not below their 200 day mas. Only the US mega caps are holding thee indexes up and these are looking weak especially when we see renewed US$ strength again. On the upside this rally could extend without breaking any technical levels to 1370/1390 (SP500 cash). On the down side the 1330 (SP500 cash) level must hold for the rally to sustain. Currently at 1345 (sp500 cash). Its a ‘narrower’ report this week. No mention of pms, fx, fixed income.. but i guess all holds from last week as very little has changed.

Weekly19-06

Macro wise, we appear to be disappointed, yet again, by policy makers, in spite of all their efforts. We have had pledges of support for the IMF to the tune of $450bn, also the Fed’s warm noises as regards to extending operation “twist”. As also the BOE swap loans for increased bank lending. Also the ECB’s $120bn for Spain’s banks. And China (and several other states inc Brazil) have pitched in domestically with rate cuts and capital reductions for their banks. Its all positive monetary action. We cannot ignore this macro news flow but is it enough to halt the slide in economic activity? Some of the above changes impact markets immediately but many are slow to feed into the global money supply.  To my mind risks continue to increase with every day that passes in spite of these latest measures.

Its the time, therefore, to review the portfolio of instruments and assets that you hold. Consider the downside risks of currency and asset holdings given the different scenarios. Now is the time to consider the deleverging downside not thee leverage upside, in my considered opinion. Risk mitigation is key here and now and i do mean risk in her broadest sense.. ie cash, bonds, precious metals, equities.. there is no such thing as a “safe” asset class any more. There are simply different risk profiles for each asset class so a more balanced approach is useful in times of turbulance.

Luck to all

Rich

 

Weekly Technical Comments – “Don’t Chase The Market”

The Swiss team make their weekly technical comments below. The rebound has finally come recording the largest weekly gain for a year in many indexes. The bad news is they don’t see the recent lows as the tactical bottom. They are still targeting 1250 in the near term (by end of july) with 1358 (sp500) as the near term bounce top. But read the entire report. Its a good round up report actually and includes some of their projections. We can take these with a pinch of salt but it is an election year and this bond rally has become a very crowded trade. The question in my mind is who will be the winner from bond outflows? Precious metals, equities or perhaps both? If bonds are topping its a game changer for other asset classes. They also sight a near term target (july) of 1.20 for the eurusd and indicate that peak in the $ isn’t far away.

Here the report: Weekly12-06

Weekly Technical Comments – No Deflationary Meltdown

Here the Swiss team’s weekly technical comments. They are expecting a large inter governmental qe3 event but weakness may extent into the fall of 2012 before a new significant bull leg in equities takes hold. They therefore discount, for now, the deflationary melt down scenario that some are pointing to. They do point out that if they are wrong on this macro call and a wider global melt down does occur it is highly unlikely to occur here and now and instead would, more likely, occur in late 2012. They predict summer strength before the resumption of  an autumn bear and important bottom in equity markets globally.

Weekly05-06

For gold bugs some very good news thataccording to their charts gold has formed a significant bottom and that a move above the 200 day ma and above $1680  would call for a re-test of the March top. Things are looking bullish once again for the precious metals and “buying dips’ is their call.

Luck to all

Rich

Market Musings – Inflection Point For Risk On/Risk Off

Ahead of the Swiss team’s technical briefing some of my own thoughts here..

We are in a very difficult area of the trading chart here. Technically we remain massively oversold but with the bounces being very poorly supported long attempts have been beaten back and you are lucky to score positively on playing the “bounce”.  Its a tricky area therefore. Shorts, targeting a collapse are very dangerous (especially with policy makers discussing monetary easing moves).  Longs have been reversed many times, even at this oversold level which suggests yet more weakness to come. In summary a chopping block for traders which is always very painful. Equally for inflationists that are running long portfolios hedging here is very tricky, indeed. A dead zone in effect for all sorts of different participants in asset markets. We are looking for a lead from policy makers in truth here.

So, we have the g7 teleconference event. We should expect swap lines and god knows what else. As policy makers appear to still be ‘behind the curve’ measures will, probably be, more “fire fighting” in nature until the main event meetings later this month. Hopefully it will be enough to spur a mini bounce of some kind or at least lead to some short covering.

On the macro front the data continues to roll over across the world. Particularly world manufacturing. Euro pmi fell to 45 at the end of last week, China providing a reading of 48 and the US at 53 is in decline, though still positive. Even, the recently positive, US housing data has started to roll over once again. US factory orders suggest the US PMI reading wont stay positive for much longer.

Euro confusion still reigns, as it has done for the last three years.

Here the Markit composite euro pmi and report pdf.I quote, they recorded:

“the steepest rate of decline in manufacturing and services output in the single currency area since June 2009”.

eurozone pmi – june12

Even Germany is now starting to feel the global slow down in manufacturing with her PMI today falling to 51 and below market consensus.

Her services sector continues her slow down.

The great problem in Europe has been the great polarization between growth levels across the euro zone holding up growth strategies. Germany has been growing strongly as others have declined, unit now.

And we also now have China, India etc starting to roll over themselves. (Although there are bright stops on the Chinese story as detailed here. Today data was released showing the domestic Chinese services sector is expanding as the export sectors of materials and manufacturing struggle to grow. According to the HSBC services survey, China’s services industry expanded at its fastest pace for 19 months in May, with new business and optimism about the future robust published today. The HSBC China Services Purchasing Managers Index (PMI) rose to 54.7 in May, extending from April’s six-month peak of 54.1. The survey’s compiler, Markit, cited new business growth as the key driver of the index).

The HSBC China manufacturing PMI, tracking smaller private-sector firms, retreated to 48.4 from 49.3 in April – its seventh straight month below 50. The employment sub-index fell to 48.1, its lowest level since March 2009. The Chinese economy does appear to be shifting gradually toward local consumption as its manufacturing and industrial infrastructure sectors continue their slow down.

Here WF providing a more bullish world economic view, Europe aside.

WF-worldeconreview

In spite of the bright spots, many are asking, this the perfect storm?

Here WF on Brazilian GDP nos which are demonstrating this view of a global weakening.

brazil-jun12

Some indicators suggest it might be, inc the “super bubble” in “core” sovereign bond prices. Negative short term rates are becoming common place as participants increasingly distrust the private financial system.  Many listed financial players are seeing their equity valuations fall below their 2009 lows. Low equity valuations are affecting banks, Insurance companies, property companies and brokers alike. The stresses on these sectors is immense right now and is not reflected in the wider equity indexes levels.

Here below the wider index of European Financial Services companies.

 

But the story is far worse for many individual companies. There is a huge amount of pain being experienced in the commercial property world. In fact all companies whose business model depends on leverage are close to insolvency here. And the ‘runway’ for relief is close to expiring as roll over dates for their debt comes ever closer. This is made worse by the fact that loan to value ratios are stressed and negative in many cases as well as debt covenant values are again close to their limits. As an example Invista (listed on the ftse) owns property to the value of half a billion pounds. She carries quarter of billion in debt owed to the Royal Bank of Scotland. She is close to breaching her finance covenants as the private sector continues to weaken and asset values continue to fall. Here a chart of Invista.

And here some details of the euro commercial property scene.

Euro Commercial Property Round up..

http://www.propertywire.com/news/europe/european-commercial-property-markets-201205106513.html

Below more details on the UK’s commercial property funding problem. Specifically, 100bn pounds exposure where LTV (loan to value) ratio is over 70%. That’s very serious. Either prices rise via monetary debasement or the government steps into bail out the banking sector once again or nationalize it entirely.
http://www.propertywire.com/news/europe/commercial-property-finance-challenge-201205246565.html
The situation across Europe is the most acute. The euro banks exposure is immense. 600bn is maturing by dec 2013. Total exposure is estimated to be over 3trn euros. And much of this is over 90% LTV (even if there was liquidity – which there isn’t).
http://www.bloomberg.com/news/2012-02-24/european-property-woes-grow-with-loans-overhang-of-779-billion-mortgages.html

As indicators of the perfect storm we can see its a coming disaster. No growth debt deleveraging and nominal decline in a world of unimaginable balance sheet size would inevitably lead to total gdp destruction, on an unimaginable scale.

Simply put we have a fiat monetary system based on an ever increasing supply of money which bears an interest. In such a system money supply must continue to grow. It can suffer some years without growth especially when interest rates are lowered to zero but extend that period for too long and the contagion from stalling growth in money supply will eat the system alive. We have plenty of evidence for this from Japan. (But we must also recall Japan went into their debt deflationary period where savings where high, world growth was strong and their government’s debt was low. None of these factors are true for the west today).

At this moment in time nominal decline and money supply contraction will literally implode the entire western system. Democracy itself would inevitably be threatened and unemployment would hit unimaginable levels.

On the brighter side we would do well to recall a few other indicators or rather to look at indicators from another way around.

Many core government bond rates are through their multi hundred year lows. Capital is totally avoiding risk and is either in money market funds off shore or cash or the safest sovereign bonds. Cash volumes for equities and other risk assets has fallen to very low levels. This off shore capital, likely in excess of 2 trillion dollars needs to reenter the economy. The onshore capital currently sitting in similar assets also needs to reenter the ‘growth’ economy. The question for policy makers is how to get the holders of this capital to rejoin the growth agenda. We can see at present that policy makers (especially Germany) are providing clear incentives to capital holders not to reenter growth assets. The story is one of austerity and budget cutting, deleveraging and restraint. In this environment capital holders will logically accept even extremely negative rates year on year (as they did in Japan, due to the likely negative gdp consequences of such a set of policies.

And so we come full circle to the inflation deflation debate and the moral debate of money printing.

Firstly inflation deflation. The policy makers one and only tool here is money printing. If asset prices are allowed to fall or even stagnate here at these current levels the world’s financial system will collapse with in the next year. Unemployment will surge. Capital will continue to disengage from the economy. Far from inflation we will have massive deflation. Interestingly, if financial institutions become insolvent who will fund the governments surging deficits as tax revenues collapse? Is any asset class (aside from gold) safe in this environment? I suggest not. Given where capital resides at present the risks of short term inflation from monetizing debt is tiny. Therefore its inevitable that policy makers reach for this tool. And reach, imo, on a massive scale. Inflation must come but not when capital holders are avoiding any assets that have anything to do with growth.

On this basis, on a macro level, not a near term technical call,  far from the indicators suggesting a global rout they suggest a buying opportunity. A buying opportunity for growth related assets. So many balance sheet exposed stocks are so close to their failure levels and global capital is so uniformly  pointing away from risk that this makes policy makers response to promoting risk and nominal growth via the printing presses guaranteed!

I’m sticking to my guns that this summer provides the final inflection point for the inflation deflation story. Policy makers will ensure the system does not collapse here. Or rather that the decision to press the button on a global monetization of debt is the easy call to make here. Politcal leaders like to make ‘easy’ calls so its inevitable. Inflation will be the consequence. The rush out of cash and ‘off risk’ assets will be immense and rapid. Equity cash volumes are low so the ‘door’ is narrow or small and the capital immense. This all suggests to me that order books will easily be overwhelmed by those seeking to reverse their stance towards “risk on off”.

If the inflation trade was the consensus trade of 2010 it is the contrarian trade of 2012. The opportunity is immense but i accept you will need to have a strong stomach over the next month or two as finding the exact bottom during this period will be no easy call.

All the best

Rich