Another Holiday in the UK today but time again for a technical run through here. I’m going to update this through the day so please keep referring to this doc as i will continue to add reports.
Following on from last week’s technical confusion we see the theme continue this week as conviction levels for a continuation of this bull market continue to diverge between the major institutional participants.
We have had a raft earnings in the last week which has also been inconclusive in either direction. Here a comment from the CS wealth team summing up earnings so far:
“What can be said is that the familiar picture of earnings growth outpacing sluggish revenue growth continues to be intact. Despite strong leading indicators and firming economic growth, companies have not yet been able to grow their revenues commensurately. Revenue growth has been barely positive, while of the companies that have reported, only slightly more than 50% beat sales expectations.” CS Wealth.
Last week:
This week:
On a macro level we have commented on these issues over and over again in recent years as this bull market has powered on. Whilst central bank action has increased MS consumer and corporate action has lead to ever declining MV. The two have been offsetting to create very slow revenue growth. Share buy backs, cuts to capex and employment have sustained higher earnings as revenues barely change. Whatever political leaders tell us this is not an encouraging trend if it sustains.
This is a not a macro post so back to the tech.
Tech wise the theme this week again has been falling volatility in bond and fx markets. No wonder GS’s price chart is looking so weak. Market participants, including your truly, cannot sustain high returns unless charts move. FX markets had always provided a good tail wind to returns since the 2008 credit crisis but in the last year or so fx volatility has died a death and returns are becoming much harder to generate. Across asset markets this is becoming a strong theme. Equities are at the same price as they were 5 months ago or so so are fx instruments and so are the bonds. The exception are the commodities and that could be telling us something if we care to listen to price.
Trading practice comment here, when MS growth is high and multiple asset volatility declines capital holders reallocate to those instruments that offer volatility for speculative purposes. Correct and this is why the macro economic demand for commodities is of lesser importance than MS growth vs relative volatility across asset classes. On a relative basis commodities are becoming more appealing to speculators that need to make a living. This will likely continue to drive capital to the asset class. This also fits perfectly with their end cycle out performance history. Of course, if equities crash this would negatively impact the commodities as fx and bonds would then move in concert with the equity moves, inversely so for the bonds. The commodity bull case rests on other asset markets consolidating therefore.
That said, to the reports.
First up id like to present the AG report.They are absolutely sticking to their guns that this market is about to crash, not simply correct. They present their price charts below. Seeing them together it makes for an un nerving set of charts, for bulls
Here report
The Russel2000 & nas100 are already in price breakdown which mirrors the nyse ‘disastrous’ technical picture we saw last week from the market breadth issues and nasdaq100 issues several months ago.
These issues are continuing to unfold. We are close to a significant correction, of this i also have no doubt but market speculation is all about timing! Option contracts time expire. Futures can be extremely expensive, very quickly, if you get the direction wrong. Increasing allocation to cash is wise here and replace cash longs with guaranteed price book liquidity cfds is a wise move. Hedging some longs is also wise as is selling covered calls. Limit leverage. This is all good trading practice house keeping, in my view.
Here GS repeating their concerns on various asset classes but remaining in the camp of a soft patch and nothing more with an uber bullish medium and longer term sp500 view.
And here, as the perfect counter weight here Fitzpatrick that has transformed into a super bull across most asset classes. Dow Jones 20,000 plus by 2015? He has allocated 70% of his fund at present vs many who seasoned pros who have cut risk allocations at present.
This is technical price trading note so its totally consistent to state this dow target and in the very next para say this:
“Rising trend line support around 15,800 and the 12 month moving average at 15,728 are important “trailing supports”. A monthly close below there, if seen, would sharply alter the positive dynamic.”
Many PIS fail to ever grasp the 360 degree turn that professional traders are able to do at, on signal, note.
Note the trending lower vix scores. This is bullish commodities if it plays out as Fitzpatrick hopes.
EM markets with their strong correlation to commodities is a key plank of the commodity bull case. As yet there is little in their price charts to lend support to that case at present. The indian index USD adjusted is constructive but inconclusive as yet.
Here his report
To my mind this is all part of a mature bull market for risk. Price and correlations are breaking down. Volatility is in decline. This is not a sell signal in itself but it is evidence that the easy money has left the table. There is still plenty of money to be made but not by running the prior correlating charts of yesteryear buying under performing assets and waiting for the longer time frame correlation mean to reassert.
As commented the fx markets are becoming as complicated as equity markets directionally here. The big event is the ECB later this week. Inflation under performed market expectations once again last week.
Here MS from last week.
Here Ms from this week:
Here Barcap on fx
Here cs with a macro fx view
Here commerce with fx weekly
Here JP with their tech strat usual
And here with some equity picks barcap
And here s&p with their h2 projections and concerns on this market especially from an earnings perspective. H1 2014 has been very weak but this has not dented the equity markets that remain at their highs in general. Internally there are more worrying signs ie defensives out performing and the usual breadth issues.
And here CS on the commodities. Various houses are turning bearish on the commodities. Note many expected the bounce and even more are expecting the bear continuation. I have low conviction expectation the commodities may surprise these players to the upside but other than a price breakout of the indexes there is little in terms of correlating instruments to support the trade. Nonetheless very much worth closely monitoring the asset class!
Here wf reviewing the inflation data: