Capitalsynthesis

Another week roles past and we have recorded, with 7 up-days in a row, the longest winning streak since September 2013. Tactically, the recent rally has been near vertical and many sectors are starting to look exhaustive in the near term again. Playing for short term pull backs is dangerous thing to do in such a strong market but having said this price is true at present so tactically if you have the time these tactical moves can be taken. On the near term the break out defensives (IDU) of their recent range is suggestive of a coming tactical pull back in the cyclicals.

US$ remains a hold as the Euro pushes lower again but momentum on the longer time frame is fading here so a profit point is likely coming at least on a tactical basis.

Here the Swiss team’s latest:

wklytech-21-2-17

And here Fitzpatrick’s latest:

CB-Weekly_Roundup-17-2-17

Note the forecast on the Euro.. Certainly on the macro side political risks are coming to the Euro in 2017. He’s been dead right on copper’s recent strength, if a bit early in calling it, so another hats off to Fitzpatrick.

V2 additions here:

SC with their fx run through

SC-fx-strategy-20-feb-2017

Many FX pair have started to chop up a little. It remains US$ biased but the strength appears to be fading at least for now. Whether we have a dollar top already in here it remains to be seen. Macro wise, the Euro remains the major constituent of the dollar basket index and there is great uncertainty across Europe due to elections and greece as well as Brexit. Its possible much of this is already priced in but shocks are certainly possible and given participants dollar biased it wouldn’t take much negative news flow to add to dollar longs and push the euro lower.  Dollar bias but with weaker conviction and therefore position size seems wise to me.

Here Scotia on bullion

pm_daily

Bullion is heating up albeit within this current price area, likely capped by the 200dma which is now very close. TIP remains a key correlation and has broken out which is potentially meaningful. Global inflation must be watched in addition to US inflation. Any US$ weakness would add into the bullish mix.

Reits are not the place to be in an inflationary period, however with the recent breakout in defensives and with cyclicals looking very extremely over bought as well as the sgd looking to have to based and have more upside ie 1.38 to US$, breaking out vs US$ as Fitzpatrick forecast.  The allocation to s-reits can produce a decent sgd income at significant discount to navs in many cases. Vs US reits and UK reits they look relatively cheap to me although i did allocate when prices were a lot lower but that doesn’t mean they aren’t an entry now.

I”ll update this table for 1stof March but the maths is self evident. The Singapore 10yr is clearly important here. She remains in her recent range for now at 2.35% or so. Ideally we dont want to see that breakout for a defensive rebound to sustain. If you are cautious allocate small an to low net debt s-reits.

I hope all are enjoying this run. almost daily new record highs on the book of assets it seems as inflation beds in.

All the best

Rich

Its been another superb week for risk assets with many US sectors starting what appears to be fresh momentum breakouts in a market that has momentum and volume. Whether it be sp500 for nasdaq100 breadth is once again confirming the move. Price is true and trading entries are working well due to the combination of broad market participation in this trend. This is a typical high momentum early stage wave five move. But, as the team ask, is this latest move simply a false breakout or a genuine start of a ‘melt up’ scenario?

To mind we cannot know. I have been involved in many melt up charts in my career and you never know when they are to occur. All you can do is take the price entries and reverse if price reverses. For now price is “true” at present, as said, so the trades can be executed fairly cleanly without much ‘chop’ occurring. This is all i can add here.

The cyclical inflation correlated indexes of Tech, Finance, Commodities are the alpha indexes. The Russel2000 still promises much if she can join the breakout with renewed momentum.

The global risk laggards of Europe and Asia which have seen long recent cyclical bear mkts have a mean reversion catch up which is showing signs of coming to life. Even in US$s.. eg FEZ. A global melt up is a possibility in 2017 early 2018 therefore.

Commodities continue to show great strength as globally inflation starts to increasingly show in the data. US inflation expectations are established but failing to break out as yet. Tip.

The US$ shows a good chart setup for a continuation of the US$ bull but she is not getting momentum here yet and the move is starting to look weak and fade. Waiting for more price evidence.

As a side comment, sector wise within US risk the housing indexes are not confirming yet, XHB, IYR. They are lagging and are potentially showing signs of topping out here. Housing is a risk asset class that in my view needs to be watched.  Globally its been a alpha risk asset class for a decade or more but higher rates and lower disposable income for the middle classes as inflation bites will provide some likely headwinds to the asset class. Like bonds, housing is a global capital investment asset. If it doesn’t provide a capital gain capital will flow else where and perhaps into global equities, I suggest.

Without delay here the reports:

wklytech-15-2-17

And here Fitzpatrick doubting the recent inflation, near term.

CB-Weekly_Roundup-10-2-17

Here RBC on commodities:

RBC-130117

Here SC with their FX run through:

sc-fx-strategy-13-feb-2017

Of course we must keep an eye on positioning here. Certainly room for the US$ to run. The setup is in place from various perspectives. A failure to push on therefore would be telling. Here scotia on the cftc.

scot-cftc

Just keep taking the signals guys.

All the best

Rich

Hi Guys,

We have the usual tech run through below. Notably the Swiss team have brought forward their US$ top this week. Several pairs have signaled that the US$ cyclical bull appears to have topped or very close to topping as a basket.  Risk remains within a distribution at present and its clear that technical breadth is not hugely positive here, across all risk. The team to appear to be adjusting their model though. Banking sector as one example, their deep retrace is now more shallow than it was. I would estimate that the US$ weakening theme is a new fresh tailwind to US equities and therefore a more shallow pull back is now baked in. And conversely a head wind to euro equities. (Its worth mentioning that a weakening US$ would be hugely beneficial for the Hangseng index and UAE index and other US$ peg related markets that are also cyclical exporters. Their charts have started to move note).

Without delay here the report:

wklytech-8-2-17

And here Fitzpatrick:

Cb-wklytech-5-2-17

Sticking to his US$ guns but with accepting a tactical pull back. USDSGD 1.38 level target which is meaningful move off the highs! Copper enough said. If you have a position in copper equities i would retain in spite of the strong run.

And here is miesels sticking with the cyclical bull, tactical pull back theme :

Meisels-030217

And here SC

scfx-7-2-17

Tactical trade eurusd 1.04 target.

I have fresh new highs on my book thanks to the yellow metal. Inflation expectations in the US and overseas (Sharply rising Euro inflation last week on the macro side), assisting. Watch Chinese inflation!

Its a marathon not a sprint of course.

With that in mind all the best and see you next week.

Rich

I am traveling once again but very aware that participants are waiting this report and markets have momentum and are moving fast.

So without delay i’m post this report up and will update in flight lounges as I can with Fitzpatrick et al and comments etc.

Just very quickly, this is a wave 5 bull market guys ie a high momentum market. Expect “irrational exuberance” on the leaders ie qqqs etc. Don’t hesitate on your entries (and exists) make hay whilst the sun shines. Be decisive at this moment would be my comment here to you.

wklytech-25-1-17

So here Fitzpatrick’s last couple of reports.. New one out today which i hope to bring you later.

weekly_roundup_01.12.17_final

weekly_roundup_01.19.17_final

And here Louis Cap.

Louis-260117

Price and momentum agree with this analysis. Of course from failed moves come fast moves so we have to be ready for this move to fail (as always) but assuming you are sharp enough on your and price doesn’t gap out of hours downward.

More coming..

Rich

It gives me great pleasure to start 2017 with the usual award winning Annual Technical Outlook report from the guys. Of course none of of have a crystal ball but of all the thousands of reports I have read over the last few decades, including many very expensive mkt “expert” reports, I can say this report is consistently the most accurate template forecast of what is to follow.

A quick trading practice comment, if the guys are correct in their “boom bust’ analysis 2017 will be the year for the momentum traders. Low volatility and momentum has been a feature of this ‘recovery’ market over the years which has not provided for a highly profitable momentum based trading strat. (Hence many hedge funds have under performed index funds). But a large end cycle stage, especially in the run up to the distribution top, usually provides an extremely good momentum trading environment. Blow off tops are the time when the crowd enters, when weak participants chase price blindly. They are the moment of extreme greed and stupidity which for nimble leveraged price traders can yield huge rewards. Equally these moments cut both ways, if you are not tight on your stops, or carry too much risk for your comfort, then volatility can be hugely unkind to the unpracticed. So its likely a year we discover how good, or bad, we are!

I’m going to leave the detail to the guys here and make some annual tech comments on a separate update. Finally though i want to just add this quote from Soros.

“The financial markets generally are unpredictable. The idea that you can actually predict what’s going to happen contradicts my way of looking at the market.” Soros on how his reflexivity principle affects the way he looks at markets.

So another year is nearly over and what a year it has been for both markets and the geopolitical landscape.

Numbers wise, on the surface a year of the US$ and US equities, once again.  As always we must look hard at the numbers and view them across currencies to see their relative performance. Here therefore, a quick run through of the major asset classes, with a week to go.

Dow & Sp500 +12% (In euros +16% & inc divis +18.5%)

Nasdaq             +6%

US$ Gold          +6%

Euro Gold         +10%

Nik225              +2% (+5% in US$ note)

HSI                    -5% (Pretty even in Euros due to dollar peg)

Dax                    +4% (Zero in US$)

Ftse100            +12% (-6% in US$)

Dollar index    +4%

Copper              +16%

Bitcoin (US$)   +100%

Its pretty clear what the alpha investment has been this year. The new digital currency has seen a strong bid from mid year onward. Copper and some other commodities have also seen a renaissance year. So 2016 saw a digital currency and commodities as the alpha performers and this was in a year when the dollar rose. This is a highly unusual and noteworthy therefore.

For my own book, I have eventually turned in +12% performance, in euros. Like Fitzpatrick below I would say i scored a “B”. I have the problem of spreading assets quite widely to mitigate risk. To mitigate risk in this way reduces my ability to really change the book emphasis as quickly as i would like sometimes. On the positive side the spread of assets across sectors and countries is a natural hedge lowering volatility and risk. On this basis a +12% is pretty impressive. The most disappointing of asset classes this year is undoubtedly gold which is under performed her positively correlated sister asset classes.

Gold deserves a separate discussion but we must remember gold is highly correlated to inflation and real interest rates. For the moment the market consensus appears to be buying a benign inflation and narrowing of real interest rates.

Judging the macro is never an easy task, hence we are technical traders here, but if I deeply believe the market is mis pricing this and that inflation is set to increase sharply and real interest rates will go more deeply into negative territory. We are paid on price and until inflation shows herself more clearly and therefore real negative interest rates widen I must accept the bullion asset class performance is likely to remain disappointing.

Below please find a number of 2017 forecasts from the major investment houses. I wont comment individually on them but only to say the technical setup remains strong here for many equity sectors and indexes. I intent to release another technical report end of the calendar year  with sector charts and technical indicator charts etc as an accompaniment to the UBS 2017 Year Ahead release.

Here some reports:

Lets start with Citi Bank’s technical guru, Fitzpatrick who has scored a pretty impressive run this year.

cb-12chartsofchristmasdec2016

And here GS

gs-risks2017

gstech_2016-12-12

gstech_2016-12-19

And here UBS Asset Management (The Technical Equities Team’s annual forecast in a week’s time).

ubs-houseview2017

And here CS

cs-investment-outlook-2017-en

and here Nikko Am

20161216-global-multi-asset-market-outlook-2017

and here Deutsche bank

db-cio-2017

And here Double line

doublelinefunds-2017

And here an excellent tech forecast report from Nautilus

nautilus-annualoutlook2017

And here HSBC’s forward

hsbc-global-asset-management-outlook17

And here JPM

jpm-2017

And here RBC

rbc-2017-outlook-the-trump-playbook

And here Standard Chartered

sc-outlook-2017

And here a chart retrospective look at 2016 by WF

wf-chartsretro-2016

And here a look ahead from WF

wf-2017-annual-economic-outlook-report

And here Yardeni

yardeni-indicators-20-12-16

yardeni-strat-21-12-16

yardeni-strat-21-12-16

yardeni-buybackdiv-dec16

yardeni-gold16

Hoping you all scored a good year and that the reports and comments provided here assisted you.

This is the first Christmas I will enjoy with my daughter who is now 9 months old. We are in the mountains of Andorra awaiting more snow. Without wishing to be cliche I do believe those of us lucky enough to understand the terminology and workings of finance have an obligation to remind to those around us just what created our prosperity & welfare. The ECB yesterday released a survey once again illustrating how quickly Europe is losing her ability to create wealth and prosperity.

https://www.bloomberg.com/news/articles/2016-12-23/ecb-finds-euro-area-inequality-edging-wider-as-wealth-declines

European leaders will doubtless blame others for unfair competition etc but sadly the errors are multi decade and lie only at Europe’s door. Europe’s welfare depends on her highly educated and entrepreneurial people to be free from heavy regulation & taxes. Only their renewed success will pay for Europe’s next generation of hospitals, schools and infrastructure etc. It is becoming vital therefore Europe changes course for our next generation’s welfare.

Please enjoy the holiday break as the markets will begin again very soon.

The very best to you and your families and thank you for your continued support of this site.

Rich

Another strong week rolls by. We have strong seasonal winds here blowing us towards a positive end of year for risk, us$ risk included. But in the coming 3 weeks US$ risk may have lost its alpha crown with international risk, currency adjusted likely to be provide the out performance due to mean reversion catch up.

Looking at the instrument tech detail.

Of the most notable moves in international risk are finally a breakout by European Banks (EXX1) and also European major indexes in Euros. In US$ the move is even stronger and shows very strong momentum (fez). Commodity weighted European risk indexes like EMVEUA (etf) out performing. We can also see the same out performance of commodity themes across US$ indexes like XOP (oil services) which has also broken out following a long distribution phase. Asia continues to under perform though the nik225 is broadly in line, under performance in US$ although in the last week finally we see a US$ adjusted turn. I say all this in case you are involved or have been involved in carrying JPY and or Euros and Cads Sgds, etc. There is some evidence that dollar adjusted international risk is finally back on the agenda of allocators. This is likely to be meaningful if correct. US risk has strongly out performed international risk for an extended period now and we therefore likely to see some close of this gap, mean reversion, at least to some degree. Precious metals vs all other commodities have the negative alpha in the post trump period. This, at the least, needs to mean revert also as said last week. Defensives themes (IDU) (Reits etc) and bonds should at the least provide a powerful bounce.  (For disclosure almost all the above are trades i am involved in, except any play on bonds at present).

With 3 weeks to go its looking like 2016 will go down as a very strong year for my own book (albeit measured in euros) even with the disappointment for the precious metals. Given we started the year with a great expectation of weakness its a surprise indeed and forms Fitzpatrick’s uber bullish “outside year”. Lets keep taking what we are given and not have too much of an expectation of what the medium and longer term future holds. The only asset class i exclusively allocate with cash and still refuse to play from a technical perspective are the precious metals. At some point this strat will be correct i hope!

Without the delay here the reports. Note no Swiss report next week.

wklytech-6-12-16

Fitzpatrick:

cb-wklytech-2-12-16

SC:

sc-wkltmkts-3-12-16

And here scotia with their cftc reading.. The tide turned on usd jpy. (ie post a lull the pair should run).

s-cftc-3-12-16

All the best for now..

Rich

Firstly, apologies for the delay in posting this weeks report. I have been traveling and it proved impossible to post.

We have extremes of over bought conditions for US equities, the US$ and interestingly, given the historic inverse correlation, many commodity themes also. Conversely we have bonds, precious metals and many defensive equities at deeply over sold levels. Contrarian indicators are flashing across these themes over the last 5 sessions or so in either direction including sentiment via AAII, putcall ratios, cftc, fading momentum etc. Certainly it appears a good area to take profit here if you have been riding trades in either direction but no trend change here so certainly worth buying the dips and or selling the bounce.

Here the Swiss teams latest comments:

wklyytech-29-11-16

Picking up a few of the points here. Defensive index in the US hit her support today and may provide a nice tactical trade. (IDU). The previous leading index of the QQQs has badly under performed her US rival indexes during this phase of the rally. She has already seen a near 5% correction with key support another 2% down with SOXX, semi conductors off by 6.5% from her highs already. (Soxx remains in better long term shape than the QQQs due to her recent breakout).

A few themes I’m very curious as to what price signals occur on any US$ correction. Firstly, the metals like copper? In theory the old inverse should propel the metal yet further though she is very overbought at present. Secondly, will eurostoxx50 30 month cyclical bear market sustain (priced in US$). A trade much surely present soon to buy the eurostoxx50 with US$. Thirdly on any bounce in bonds im curious to see how much of the recent losses the property reits claw back? Rates across the world have jumped inc Singapore. Have the Singapore reits funded via carry sgd vs the us$ become a sell the bounce candidate. Perhaps but id personally like price confirmation of this.

Here an ultra bullish couple of reports from Fitzpatrick.

He has been spot on across almost asset classes from Oil, Gold, US$ to US Equities to Copper to bonds. Though his timing isn’t always perfect his longer term calls have been so he deserves some attention.

cb-wklytech-24-11-16

cb-wklytech-29-11-16

And here LC:

meisels-29-11-16

And here SC with a their good tech run through with a splash of macro comment:

sc-fxtech-29-11-16

A likely pause for the US$ so we look for price signals across asset classes, inc gold.

A quant macro comment, the sp500 and dow30 are trading well but lagging key domestic US cyclical indexes like IWM etf. Large corporate tax cuts will certainly help US earnings but a high US$ is a negative that will greatly offset the corporate tax positive at least for the large multinational corporates.

On the US$ we have imminent positive overnight rate differentials between the US$ and most other currencies drawing capital to US$ overnight cash.  Although higher over night rates are initially supportive it is real rates that matter. The US$ is about to see a significant increase in supply thanks to the increase in issuance of debt. Large supply increases are a dilution of the existing monetary base. Any growth needs to stay ahead of inflation and this is an unlikely task in a economy starved of capex investment ie little manufacturing slack and with little labor slack also. Prior episodes of stimulus like this have usually occurred at the bottom of a cycle not at the top of one eg 1982, 2003 etc.

Here a couple of WF reports from a macro perspective playing into the above comments:

wf-infrasturespending16

wf-globlatrade

Apologies again for the delay and good luck on this 4 week run up to the holiday period.

All the best

Rich

Another excellent week if you are involved in the long usd risk assets funded by borrowing other currencies. The Russell2000, Financials and Transports have provided the beta and in measured in the world currencies like jpy or euros or sgds they are up 15% in just a few weeks. Its a near vertical move and as the team suggest, although the breadth is excellent, they are showing over bought conditions and therefore the risk reward is starting to shift on the near term timescales.

What has not performed are the other carry trade candidates. The long nik225 carrying the jpy has been ok but the long ftse100 carrying the pounds has not performed and the negative beta, again, has been long euro equity with borrowed euros. You have to wonder if or rather when the euro area equities may ever perform so long has their under performance been. Asian equities have also failed to perform.

Bonds and precious metals have been the negative alpha candidates with both moving swiftly downward. They are being classed together as safe heaven assets. Therefore not what is needed in a cyclical inflationary period. From a macro perspective its worth therefore restating here that gold is clearly not only a safe heaven. Gold’s long term function is to act as a store of wealth during inflationary periods. Beyond this it also acts historically as the alpha hedge to inflation when monetary growth exceeds economic growth ie in stagflationary periods.

Stagflationary periods usually occur when excessive monetary liquidity is poured on to a poor productivity economy. Typically where regulation is high and where historic investment in the means of production has been low. This is exacerbated during periods of protectionism or trade wars and where skilled slack in labor and or the means of production in an economy exists. From a macro perspective the stage is set for bullion’s mega secular bull market to resume. Technically we are waiting for a momentum surge to show an attempt to rejoin longer term trend.

For my own book i’m close to record highs but i have been at the same level now for the last few weeks. Ive enjoyed the warm winds of the various currency pair trades vs the dollar and also the various long usd risk allocations. Offsetting these positive winds have been the weakness in the eurostoxx50, ftse100, Hangseng, Singpore and precious metals. The out performance by US equities over world equities is stunning and at extremes of extremes.

Without delay here are the teams latest comments:

wklytech-22-11-16

And here Fitzpatrick:

cb-weekly_roundup-18-11-16

Here LC:

louis-211116

More to come when i find time.

All the best

Rich