Good evening gents,
It gives me great pleasure to bring you the latest update which to recap is an amalgamation of the traditional reports we used to run in their raw format re-rewitten by yours truly to comply with mifi2 regs. Ideas are not copy write, yet.
Lets start with US Risk:
The rebound in the Sp500 has been the strongest for 40 years. But with increasing selectivity and with the key lead indicators flashing of weakness in cyclicals the market pullback became increasingly likely. With last week’s break of the SP500 key support at 2775 the sell-off across the market inc Russell2000, we got the formal confirmation that the likely 4-month cycle peak in the SP500 is in place, which in the beta outperforming Nasdaq top still in process. On an ultra short-term basis, the SP500 inc cyclical sectors are oversold which is already being worked off. A false bounce into expiration is likely but should, as a trade, likely be avoided. The daily trend work is still at too-high levels, the put call ratio shows no obvious bias for entry long so the probability is for a continuation of more
near-term weakness into end March. To be clear, this rally has been sufficiently technically strong that it is unlikely to dissipate over night on a swift dramatic reversal. An April continuation bounce of the rally is the probable event.
Sector wise beta outperformance in technology and defensives, sustained weakness in banks (globally). A re-test of 2817 but definitely do not expect a new price breakout. 2682 remains an end march level to watch to the downside worse case 2642, so where we prefer to buy into weakness instead of chasing the market on the upside.
As a recap the C wave is yet to come, likely in H2, whereby global equities could roll over into a full blown exhaustive c wave high volatility bear cycle target 2070 into H1 2020.
European Risk
Last week we saw initial reversals but where Europe remains resilient and outperforms the US and
Asia/EM via continued out performance of heavy-weighted defensives zirp to infinity and beyond. On a very short-term basis, we can expect a bounce into expiration with even selective new reaction highs. However, with trend work rolling over on extreme overbought readings, Europe remains tactically toppish for a short pullback into later March before we expect the next bounce attempt starting. The 200-day moving average at 3280 needs to be watched. 3230/3200 into late March the probable levels to come into play.
FX Pairs:
Last week’s ECB LTRO decision triggered renewed EUR weakness with an initial breakdown of a key level. The USD strengthened across a varity of pairs as the cleanest yielding dirty shirt. On a very short-term basis, the USD is already working off its overbought readings. But this is an entry opportunity on patterns that show across the eurusd, usdcad and usdsgd etc.
A new DXY breakout suggests more Asia/EM under performance into later March, headwinds for commodities, gold (minor wave b bounce), and we would see the too strong US$ as part of the likely trigger for our suggested SP500 pullback into later March. Watch the US$ trade deficit, earnings of the mega caps and the ballooning public US$ borrowing numbers. (So much for the cleanest dirty shirt making the yield unlikely to sustain for too long).
Bonds:
In global bonds, yields have started their pull back across the board where particularly in the US and Europe, 10-year yields negated their breakouts. Tactically, into late March, as long as trading below 2.76%, we can expect US 10-year yields re-testing the key support at 2.55%, January lows. 2.40% into early Q2 is likely to come into play.
With the early April yield bottom the correlation to a significant (risk-correlated) tactical bounce in (global) yields into summer remains the base case, especially in European risk equities correlated with rates, we see banks as a contrarian tactical buy into late March weakness.
Precious Metals:
Given the signals of near term (to end h1) the US$ strength is likely to provide an inverse head wind to the precious metals complex. However as we can see the rising strength of the US$ is not holding back the precious metals in a classic end cycle insider accumulation signal.
Crypto Risk:
We have lost all momentum to the upside. If the SEC wanted low volatility to award their etf status on the asset class they now have their low volatility.
As a final side comment its interesting to observe that many so called free floating exotic fx pairs are showing less volatility than their western g10 cousins. How the world is changing.
I hope to bring you more very soon to update this.
Kindest regards
Rich