Welcome back and to the first weekly technical analysis post of 2017.
What a phenomenal run up we have had since early November16 across most risk assets, even including the eurostoxx50 eventually. The negative beta turned out to be Asia over the period in spite of initial promising signs. The ftse100 carrying the local currency was the alpha but dollar adjusted was also a negative beta. Copper and many commodities out performed in spite of the dollar strength.
Here and now equity risk is clearly starting to distribute. The initial moves uniformly showed excellent breadth and the move has sustained further and higher than most would have supposed but the recent highs of the recent lead indexes like the nasdaq or nas100 are showing ever weakening breadth in spite of their recent highs.
The swiss team, below, make ref to the breadth measure of stocks above their 20dma on the sp500 due to the recent distribution. This is equally correct.
Volatility is extremely low and although the total put call ratio is not at contrarian levels she is certainly low.
Note the comment re the US bank index, that the team expect a 23 to 38% retrace-ment of the June to present run up! That is quite a call and noteworthy therefore.
Eurostoxx50 key support 3281 which we touched and bounced off in the last few sessions. Pattern wise the eurostoxx 50 in euros and dollars is more constructive, in my opinion, and is an index with more relative upside than the main US equity indexes.
US Sentiment wise the team clearly state:
“All our sentiment indicators have reached extreme territory, which is a burden and risk for Q1.”
US$ I concur with the team and their related comments re gold. I would only add to monitor the chart of TIP in the US as the correlation is sound between the pair on the medium term. From a macro perspective there is clear evidence of inflation being established in the system. The chart of TIP also infers this and therefore i would expect a higher low from gold even in US$ and even in spite of a new dollar high due to rising inflation expectations.
Watch the US ten year. As Gross called out if she goes through 2.6% it should be front page news for risk assets.
“If 2.60% is broken on the upside – if yields move higher than 2.60% – a secular bear bond market has begun. Watch the 2.6% level. Much more important than Dow 20,000. Much more important than $60-a-barrel oil. Much more important that the Dollar/Euro parity at 1.00. It is the key to interest rate levels and perhaps stock price levels in 2017.” B.Gross
Bill Gross Investment Outlook_2017_01
I would add oil and industrial metals are likely to come under some price pressure mainly driven by their inverse to the us$ reasserting itself though like gold, due to rising inflationary expectations expect higher lows.
The team fail to mention Asian equity indexes which has under performed Europe and the US. Although a wave 5 of a global rally in risk is usually selective in terms of sectors it is usually a highly correlated wave in terms of achieving new highs across global equity indexes (think 2007 and 2000 as recent examples). On this basis Asia has some catch up and therefore should be a + beta.
Without more delay here the Swiss teams latest comments:
Fitzpatrick and others start again next week but here a selection below.
Here Meisels tech latest :
And here RBC’s tech view :
And here Williams:
And here SC with their run through on fx:
All the best to the many subscribers here on Capsyn
Rich