Firstly, apologies for the delay in posting this weeks report. I have been traveling and it proved impossible to post.
We have extremes of over bought conditions for US equities, the US$ and interestingly, given the historic inverse correlation, many commodity themes also. Conversely we have bonds, precious metals and many defensive equities at deeply over sold levels. Contrarian indicators are flashing across these themes over the last 5 sessions or so in either direction including sentiment via AAII, putcall ratios, cftc, fading momentum etc. Certainly it appears a good area to take profit here if you have been riding trades in either direction but no trend change here so certainly worth buying the dips and or selling the bounce.
Here the Swiss teams latest comments:
Picking up a few of the points here. Defensive index in the US hit her support today and may provide a nice tactical trade. (IDU). The previous leading index of the QQQs has badly under performed her US rival indexes during this phase of the rally. She has already seen a near 5% correction with key support another 2% down with SOXX, semi conductors off by 6.5% from her highs already. (Soxx remains in better long term shape than the QQQs due to her recent breakout).
A few themes I’m very curious as to what price signals occur on any US$ correction. Firstly, the metals like copper? In theory the old inverse should propel the metal yet further though she is very overbought at present. Secondly, will eurostoxx50 30 month cyclical bear market sustain (priced in US$). A trade much surely present soon to buy the eurostoxx50 with US$. Thirdly on any bounce in bonds im curious to see how much of the recent losses the property reits claw back? Rates across the world have jumped inc Singapore. Have the Singapore reits funded via carry sgd vs the us$ become a sell the bounce candidate. Perhaps but id personally like price confirmation of this.
Here an ultra bullish couple of reports from Fitzpatrick.
He has been spot on across almost asset classes from Oil, Gold, US$ to US Equities to Copper to bonds. Though his timing isn’t always perfect his longer term calls have been so he deserves some attention.
And here LC:
And here SC with a their good tech run through with a splash of macro comment:
A likely pause for the US$ so we look for price signals across asset classes, inc gold.
A quant macro comment, the sp500 and dow30 are trading well but lagging key domestic US cyclical indexes like IWM etf. Large corporate tax cuts will certainly help US earnings but a high US$ is a negative that will greatly offset the corporate tax positive at least for the large multinational corporates.
On the US$ we have imminent positive overnight rate differentials between the US$ and most other currencies drawing capital to US$ overnight cash. Although higher over night rates are initially supportive it is real rates that matter. The US$ is about to see a significant increase in supply thanks to the increase in issuance of debt. Large supply increases are a dilution of the existing monetary base. Any growth needs to stay ahead of inflation and this is an unlikely task in a economy starved of capex investment ie little manufacturing slack and with little labor slack also. Prior episodes of stimulus like this have usually occurred at the bottom of a cycle not at the top of one eg 1982, 2003 etc.
Here a couple of WF reports from a macro perspective playing into the above comments:
Apologies again for the delay and good luck on this 4 week run up to the holiday period.
All the best
Rich