Markets have maintained a holiday like atmosphere with narrow trading ranges for several weeks now as volatility reduces across all asset classes. This, as the Swiss team suggest, is likely to change as the days roll by into the end of August.
The latest report is a very carefully worded report with some key levels covered. The team present a complex highly selective wave five with cyclical themes dominating. They forecasting a near term top and significant correction.
“A break of 2175 would imply a pullback to the early July breakout resistance at 2134/2120.On the upside, a break of 2194 would imply renewed strength into deeper September towards 2200/2260.”
They predict a likely scenario of a continuation of relative weakness for European indexes.
“If the Euro Stoxx 50 is unable to break its pivotal April top at 3157 (where the 2015 bear trend comes in) we have the risk to see another potential litmus test on the downside into later October/early November where we cannot rule out a re-test of the February/June bottom
at around 2670.”
Much discussion and charts rightly devoted to the DXY, interest rates, gold and commodities. Which alongside Fitzpatrick’s focus on the same issues and GS’s lack of conviction now are all neatly illustrating the technical and macro cross roads we are approaching again re the US$ and related asset classes. Fitzpatrick makes the case that a pre election rate rise would be very unusual even at these low nominal rates. Certainly rates, inflation expectations and recent US$ weakness is suggesting the market is starting to buy into this scenario. This would also fit with the Swiss team’s US equity market continued out performance vs Europe and Fitzpatrick’s bullishness on oil and related themes.
Sector wise, whereas lower for longer might be positive for the bullion, transports and technology cyclical issues it would not be good for the banks which would likely continue to under perform. Cyclical out performance should be good for em markets and Dax which has broken out of her 10,400 level but, at least for the wider euro indexes any Euro strength beyond the 1.15 area to the US$ would be present severe headwinds to these other euro indexes. Hence the Ibex35 has not broken out and in part this relative out performance of the Dax could be explained by this near term US$/rate scenario.
Id like to add one insight into this asset market mix which is regarding the sgd as an asian em equity indicator. The sgd is on the verge of debasement it seems vs the us$ and possibly the euro. I have noticed it has become a very useful indicator over recent years for out performance of the em equity markets ie sgd debasement usually signals em equity out performance to come. The US$ is about to breakout vs the sgd and has a nice formation. The euro has recently scored momentum vs the sgd to the upside, she is at her 200dma and also the top of the multi year bear trend down. Euro wise, is it a false move or typical August dead cat bounce? Very possibly and generally you stick to the trend in these situations but its certainly worth monitoring this recent relative strength vs many currency pairs and it could be a signal therefore. The US$ pattern vs the SGD is more conclusive of the two.
Without more delay here the various reports:
And here Fitzpatrick:
And here GS:
And here FBN
Ill update this when i find some time.
All the best
Rich