I hope all are enjoying their summer breaks here.
Certainly listed securities of all shapes and sizes are moving here and we see major new trends taking hold and old trends gradually breaking down. For those that have positioned correctly (and incorrectly alike) this is a wealth transformative period. Volatility and directional speed is likely to increase here rather than subside.
Many subscribers have been heavily long precious metals over the years and more defensive type stocks s-reits included so hopefully all are feeling the upside of the 2019 moves. This has been a journey and continues to be a great journey that some readers here will remember. The journey has taken a giant step forward this year. I just remind that we are, most likely, very early into these new trends. I wouldnt consider hitting that sell button too soon therefore on pm bets that you may have made. There will however likely be a lot of price discovery until the trends are fully joined by the pack.
My own book, like yours no doubt, is experiencing a dramatic growth rate but i feel a great calmness about all this which is probably a very good thing. I hope all have experienced a good return rate here, you should have if you have followed these pages.
Without wishing to sound like a philosopher (aka Soros, god forbid!) my own feeling is that there is no need to shout this from the roof top. Wealth gains via correctly assessing listed security prices and their movements is a fine art that cannot be explained easily. 90% of small investors lose money or massively under perform and this will always remain the case so there is no point in evangelizing these things in my opinion. Experience has taught me this and so be it.
If you are experiencing transformative wealth gains here be humble and sanguine about it. Hard work and no doubt a little luck have allowed you to win some time and opportunity to experience more the world. Monetary units are simply claims on units of labor that the fortunate amass. Which is also why central banks stealing our units and giving them to their buddies is just so unjust
To the Swiss team:
July Top Confirmed
• US Risk (tactically) : Over the recent weeks it was clear there were deteriorating market internals, the increasing divergences in indicator work,and the distributive signals (several Hindenburg signals were triggered) as leading indicators for moving into a major wave B summer top, which from a cyclical aspect looked likely to be a July top and closely correlated to last week’s ECB/Fed meetings. Together with the escalation of the Sino/US trade conflict and the break of the 2973 key support, formal confirmation that this is the starting point of a short but sharp correction cycle (with SP500 targets minimum 2730 and more likely 2600) into initially later August and ultimately into first half October where we have our next tactical buying opportunity.
With last weeks sell off (91% down volume event) the SP500 was oversold where a bounce of 1-2 sessions occurred. However, without signs of a real capitulation (missing spikes in fear indicators), more downside is extremely likely, where we have a minor trading low projection for a somewhat more significant rebound into first half September before expecting more downside into first half October.
After the break of 2868 we have a next support/target at 2770 to 2730. Breakdowns in cyclicals, technology and small & mid-caps are underway but where defensives remain key. With an initial break down in staples and utilities/healthcare sitting on the edge defensives are the real threat for the SP500, since a broader breakdown in defensives would put further pressure on the SP500.
Note, Same applies to other markets. With yield curves flattening and central banks jaw boning and in some cases already acting to bring rates down the hunt for yield is temporarily holding up some of the defensive issues. Capitulation of market participants is when we see a rush for liquidity and therefore the exists from all risk assets, yielding and non yielding alike. We don’t see this yet but it is to come.
• US Strat:
- Major Q1 2018 top and start a larger A-B-C corrective (trading) bear market. With the December 24th low, the SP500/global equities completed bear wave A.
- December low of 2351 the basis for a larger wave B rebound cycle into summer top before global equities roll over into a wave C bear cycle. where strategically we expect a
- Wave C – Re-test of the December bottom at 2350 into initially early Q4 – and ultimately into Q1 2020.
- O1 2002 completes the 2018 corrective cycle and this is the starting point of a new 2-
to 3-year lasting cyclical risk bull market.
European Risk Markets: With Europe under performing and after the late July false break in the Euro Stoxx, last week we saw our suggested reversal, where the subsequent break of its key support at 3467 was the trigger for an impulsive wave 3 breakdown. Europe was oversold and we can saw a bounce off from its 200-day moving average (Estoxx at 3300 and DAX at 11600). However, with key sectors trading in an impulsive wave 3 down, it is very likely to see more downside into next week, where an undershooting towards 3227 and 3152 in the Euro Stoxx is likely.
• Macro/Inter-Market Analysis: On the macro side, our focus remains on the USD and its increasing selectivity. On track with our core case, we saw a new and impulsive USD breakout against the Asian/EM/commodity block, where USDCNH has broken its major threshold at 7.00 and which was the suggested trigger for significant higher cross-asset volatility. In the high beat complex key pairs (CNH, KRW, SGD, TWD, NOK, SEK) are trading in wave 3 up, where apart from a short-term pullback its likely to see further USD overshooting into later Q3, the preferred timing for a major wave 5 USD top. On the other hand, the heavy weighted EURUSD saw the undershooting below 1.1100 but where our suggested risk-correlated (funding currency) re-break above 1.1100 has triggered a classic short squeeze, which makes the August 1st low at 1.1025 as a candidate for a major EURUSD low.
Bonds: Tactically, we saw the early July bounce in yields as just a corrective rebound before we expected the next break down in yields below 1.80% into later Q3. Last week’s sell-off in risk markets triggered a somewhat earlier breakdown (minor wave c bounce failed) and with the new impulsive move, US 10-year yields have reached our next major target below 1.80% earlier as expected, which makes it more and more likely to see a serious re-test of the 2012/2016 bottoms below 1.50% into later Q3/early Q4.
Industrial Commodities: The pressure in economy sensitive commodities remains imminent where copper is sitting on the edge for another impulsive breakdown.
Gold we see a new risk-corrected breakout with Silver and Platinum likely to provide the beta. Although gold is trading in a minor wave 5 (as part of a larger wave 3), the break of $1450 is bullish and opens the door for a tactical overshoot towards best case $1580.
Asia/EM: With the impulsive breakout in USDCNH, Asia/EM is under pressure, which confirms the risk case of a wave 3 breakdown in the MSCI Emerging Market. Key markets such as the HSCI and the KOPSI are on the way of testing their October lows, where a breakdown is increasingly likely. The S&P/ASX-200 is breaking its 2019 bull trend and together with USDJPY in a wave 3 down. The Nikkei-225 is also poised for a break of its June low at 20.306. Tactically bearish Asia/EM and likely to bet the downward beta region into a later Q3/early Q4 before a major buying opportunity is likely to present.
I leave you with the thought of whether we have reached a relative purchasing power value ceiling in terms of the major equity stock indexes but this later. Central banks can of course drive up nominal prices but in terms of relative value it seems most asset markets (bonds, housing, equities) appear capped here which would have major implications for the prices of precious metals going forward.
All the best
Rich