Evening guys,
For those that have sold, gone short or hedged this rally its been a patient trade for the last few weeks during which many indicators have been showing impending weakness but price has kept drifting high in this bear squeeze with an absence of any contrarian sentiment top in place.
US Risk: This is now the strongest momentum rally in more than 40 years. Tactically although the rally impressive it hasn’t changed the high conviction, short-term tactical view. The increasing selectivity the internal momentum of the rally has been deteriorating since early February. Indicators like the CBOE put/call ratio are now at extremes, growing divergences on price moment indicators and on the macro side the data from across production to the consumer is clearly rolling over. And together with our daily trend work at record overbought levels the conviction trade remains to see the US market close to an important tactical top (4-month cycle peak) as the basis for a short and potential sharp pullback into initially early March and ultimately into later March before starting its next bounce higher into early Q2. With Friday’s 2765 level the cash SP500 continues to show the sequence of higher lows as intact but making 2765 a new and objective trading key support. With an intact divergence in short-term
price momentum, the SP500 still trades in the time frame of last weeks suggested minor trading top. On the upside, the SP500 is facing its next bigger resistance at 2817, and with key sectors inc XOP, DJU, consumer staples, housing, and US banks facing resistances a near-term reversal is close and should be the starting point for an initial down test into early March. With a break of 2765/2750 the SP500 should pull back towards minimum 2700 (worst case 2640) later into March19 before starting its next up-wave into late April/early May19.
Cyclically, with the exhaustive December undershooting into the December 24th low, the SP500 completed correction wave A. In this context, we see the December low at 2351 as a multi month low and once this B wave is complete it remains a high conviction to see the risk of global equities rolling over into a new wave C bear cycle with a SP500 target of 2070 into H1 2020. This would complete the 2018 corrective “trading” bear market.
European Risk Markets:
Most of Europe hit a new reaction high last week but with losing momentum and non-confirmation forming across indicators. Small and mid-caps trading in a wave 5, a divergence building in the DAX and the Euro Stoxx50 heading into resistance at 3300, 200-day moving average. Europe is short-term toppish and vulnerable for a tactical pullback into deeper/later March, Euro Stoxx50 target 3125. The final next bounce higher, into later
April/early May, Euro Stoxx50 target 3400 and DAX 12.000 before the global C wave commences.
FX
On the FX side, we have seen our suggested short-term breather in the USD. With our short-term momentum work reaching oversold levels, we expect the USD to be close to starting its next bounce attempt, where on the upside 97.37/97.66 remains a key breakout zone. As long as the DXY trades above its January bottom at 95.00, the conviction is bullish US$ biased, where a break of 97.66 would trigger a fresh cyclical long
signal and suggest a higher US$ into late April/early May. Pairs SGD and AUD remain key directional indicators (H&S pattern forming) where into March we can generally expect a breakout set-up and trend impulse developing in the USD. Renewal of strength in US$ would imply headwind for commodities, where last week we saw a first reversal in gold (after reaching the $1340 target) and with yesterday’s reversal in crude oil the CRB has likely completed a multi-month cycle top, which sets up a significant corrective pullback into early April before starting its next rebound leg into early May.
Asia/EM Risk
On the back of positive news flow on the Sino/US trade talks, we saw a massive rally in the SSE with a record volume spike in Chinese small-caps (CSI-500), similar to the 2015 bubble top. With the return of the retail money and the vertical rally, the current move is exhaustive. Short term, the SSE can still overshoot towards 3070 (next HSC target at 11900) but a tactical pullback in Asia and EM into later March/early April is the high conviction trade before starting its extension B wave bounce higher whereby Asia/EM is likely to post new reaction highs in its final wave B rebound cycle.
Crypto Risk:
The underlying bounce of the last month or so remains in tact with 5000 in line of sight although price momentum is fading here. Its make or break for this btc rally, in the next 2 or so trading sessions. Conviction is fading that the rally can sustain. Close stops but with a trading buy showing here and now.
I will try and update this report with some comments of the cftc report and a marco report from yardeni and a some charts on the above.
Kindest regards to all and have a great weekend.
Rich