Sunday evening so time to refresh on where we are for the week ahead across the major asset markets.
As a general comment we keep getting these sell off Friday’s that makes for bad timing between the release of the Citi report and the AG report. Take away Friday’s bar from the AG charts and they the technical picture changes dramatically. How can one day matter so much but it is for technical reasons as we are a key area of price here across many instruments. Its also worth noting here that we have many market leading chartists and guru technical and macro analysts with polarizing views between a hard sell off and a broadening of the market strength.
Fitzpatrick here below, released on Thursday. Allocation wise he is sticking to his top trade namely to the usdjpy with jpy weakness in play. He is expecting the Nik225 to rise and the currency debased.
He remains a commodity bull and a weak bull on the US S&P500, forecasting higher rates across the yield curve.
Here his report.
The fairly optimistic charts provided by Cti above as well as UBS are the diametric opposite of the AG house view here:
Without wishing to be called a fence sitter on this directional issue. I want to say that the S&P500 can still achieve a higher higher up to 1925 or even 1950 with this still remaining an important distribution topping process. There is nothing in consistent with this in my mind. It is very possible some of the major indexes do not rally with her. The Russell2000 may well have already scored her high for the year. Significant market tops are formed sector and a time and they weaken sector by sector. Large bull markets are generally warn down and so this appears to be the case this time around also.
Here GS with their weekly chart pack:
We can see here that GS are bearish many risk markets here.
They are bearish USD vs the JPY. They are bearish the NIK225. They are bearish the AUD. Those three trades tell you an awful lot where GS think this market is heading in the near term. But if we look inside the detail of those near trades they remain in the camp for a pretty shallow correction here ie usdjpy down to 99 before moving higher and sp500 aside from near term issues moving much higher also.
In a spectrum of bull to bear I would place Citi with UBS followed by GS followed by AG.
Here a report from the CS investment which is also quite cautious here.
For sure whatever sort of trade strategy you are working with the easy money has left the table. That doesn’t mean we stop playing but it does mean we have to be pretty focused here with allocation, risk management and position monitoring.
Whether you are playing a short term trade of resumption of trend or a hedging strategy for your longs with shorts or option puts or perhaps you are playing a late cycle commodities fx and instrument strategy you need to be pretty careful on watching how your cash, margin and P&L are being affected by instrument moves.
For my own book im low conviction short term trading for a bounce. But its low conviction and its only a short term trade. This indicates im very uncomfortable with risk markets. On any strength that doesn’t come with some technical indicator improvements I’ll be hedging with put options once more especially as we are entering a weak seasonal period here.
Guys Nyse market breadth is appallingly bad here.
This chart is not simply reflective of a tired bull market it is stating clearly that something is not well in the wider investment market. It could simply be reflecting the weakness in earnings and the macro data that we have seen. Equity prices never corrected to this weakening in earnings expectations nor the ‘soft patch’ in world macro growth. Equities have defied gravity for some time now. So long, in fact, that they may well have avoided the downside of this recent cycle weakness. But that still remains to be seen. Price will, of course, be the final confirmation.
The nasdaq100 has great price weakness now and technical weakness as well as does the Russel2000 but the SP500 still looks constructive in terms of 52 wk highs and also stocks above their 200 dmas and still shows support here.
This is typical of a topping process to confuse and cost market participants margin and time.This is exactly how markets top and historically, usually commodities do very well in this confusing distributive period.
The better news is that at least we have more market participants hedging here which will mitigate the downside if she comes.
A large number of nasdaq100 puts have been accumulated by participants probably to hedge their longs rather than clear directional trading, at present.
Here scotia with their cftc (mainly fx) report from friday:
And here yardeni with their wider report of the cftc positions. (Recall this data is always some days in arrears).
Stand out instrument here from the cftc are the huge number of longs accumulated in the oil markets. We are approaching driving season but even so this looks top heavy here so dangerous which is a shame as the oil equity sector has recently scored a hard won price breakout. If oil goes through her supports the rush to reverse could create immense volatility to the down side. The Ukraine could of course come to the bulls aid here this week.
Much more to come in the next few days.
Cheers Rich