Volatility has indeed jumped and so summer is officially over.
The Swiss team have made a significant shift in their forecasts and have called the important medium term top on risk markets as in. In the near term a bounce but unlikely to make much progress beyond prior price highs. They forecast in stead an 8 to 10% correction for risk into end October early November. Levels for the SPX are 2100 to 2134 as key support which would open the gates to a more significant price move downward. As we have bounced off the 2120 area, cash, for the last few sessions we are starting to set up, near term for a momentum attempt to rejoin trend. Price wise from failed moves come fast moves so any momentum failure to rejoin trend would be significant and would need to be actioned to protect risk holdings or aggressively to attack with shorts.
For my own book and views i have some divergence with the team here as i believe its too early to call a top here. Price will define what occurs on the reattempt at the highs. We must watch momentum and price levels carefully across asset classes and sectors and breadth to determine allocations. Some key US indexes and sectors scored excellent breadth and achieved key price level breakouts whereas, yes, others did not ie transports and international indexes etc. Some like the qqqs continue to look very constructive, bouncing back to within striking distance of new highs. The weight of evidence is weighted towards the bulls on the multi month but near term of course a fast correction of 8 to 10% could occur especially if it forms the basis of a bullish rotation towards cyclicals.
As one example if US banking (BKX) fell 9% from its recent high of 73 it would take the index back to its 200dma and price support at 66.5 or s which is also the 50% fib retrace level. And in it self it would not invalidate the bull trend given where price is currently across much of risk. Ditto the same maths against much of risk inc Russell2000.
Having said the above the same maths does not apply well to weak indexes and sectors. It would place firmly into bear trends and territory. The dow transports would look horrible even with a -3% move from here. Even cyclical indexes like the DAX30 would technically be a sell if we saw a 10% downward move from here placing price well under her 200dma and setting new long term sell signals. The picture is even worse for the ibex and mib etc. And lets not mention the euro banking index. 10% down or more from here would start the alarm bells once again on solvency for the sick sector. The eurostoxx50 looks technically on the verge of becoming an aggressive sell. If ever there was a risk asset candidate for a monetary rescue its the eurostoxx50 index. Obvious key last ditch support 10% lower. Even the nik225 has a better technical setup than the eurostoxx50 at present with key support at 15000. Its also worth mentioning that some sectors have already corrected by close to 10% like the commodity etf PICK and the utilities sector IDU.
Currencies wise still no knock out technical blow for the eurusd and or usdjpy but the usd has very constructive patterns on the SGD and CAD AUD etc.
Anyway without more delay here the latest comments:
And here CB:
Sticking to his bullish US$ and commodity themes. Crude wti support at 42 an important level. USDCAD looking pretty constructive for the us$ to me and usually its the inverse to crude but Fitzpatrick draws our attention to the breakdown of this relationship during the yr2000 crude and us$ where both rallied strongly. The US$ also added weight vs the Cad whilst the WTI US$ price rose strongly. Long term correlations like all rules occasionally get broken, usually for good macro & monetary reasons.
Here LC with their excellent price based report:
Some good levels and charts here.
On the yield front i just want to mention that the Spanish ten year on Thursday last week hit a new record low yield. This is even as Spanish debt to GDP surpasses the 100% level now, Spain remains without a government and is heading towards her third general election and her public debts are set to keep expanding annually at approximately 4%+ of GDP for 2016. Central banks continued support for bond sales is clearly crucial to sustaining large public sector deficits for as far as the eye can see.
More coming..
Rich
All of this details we must watch carefully before acting with conviction.