Guys, I’ll update this in real time through out the weekend but here for starters is the summary of the usual annual technical forecast update, albeit in a new mifi2 compliant ie proprietary format.
A small change that I make our Capitalsynthesis a closed group and enrollment is by invitation only or by reference of existing community members.
Onwards and my sincere apologies for the long interruption in service.
Summary
2018 saw the start of the cyclical bear market with many world mkts topping out prior and finally the US indexes topping out in Q1 2018. The corrective bear market has started but to be clear the bust phase of this cyclical bear market is missing. This is likely to be a corrective ABC bear cycle in which we are still at the early stages of the B cycle. The real breakdown in global equities lies ahead. Targets and levels on each of the lead indexes will be discussed below.
Timing wise, expect global equites to be vulnerable for a second deeper bear wave from a summer top into late 2019 or early 2020 with Euro Stoxx-50 level target at 2600.
Sector wise we saw relative strength in defensive vs cyclical themes commence in 2018 and this trend looks like to continue into h1 2020. Defensives as a relative outperformer is a given although having said this given the weakness across all risk assets the relative out performance of the defensives might not be enough to keep then nominally positive for the calendar year. An absolute correction of the over-owned US defensives inc biotechs has a high probability outcome. One of the candidate sectors for a nominally positive year are the European under-owned telecom and utilities. (As of 25th jan 2019 many are over sold inc VOD, emphasis added). Positional Q1 Q2 trade, a tactical rebound in the oversold cyclical sectors from a likely Q1 low into Q2 early Q3 summer19 should be on the radar.
Credit markets are a key h2 trade and its a high probability that credit spreads will blow out and particularly bearish EM/high yield and small & mid-caps. US$ margin debt as well as corporate debt are at record levels. Also consider the central banking cycle has peaked, tight market liquidity, and credit spreads still at benign levels. Its a likely we see a major market event in credit on the wave C in credit markets.
US$ wise we have an intact secular bull market in the usd. Post the h1 risk on rebound the stage is set for an h2 into q1 2020 us$ bull leg wave in a maturing secular USD bull trend.
EM markets inc Australia will likely provide the +beta correlation to risk on indexes out performing in to h1 to the upside and to the downside in h2. Country risk wise Australia carries the highest risk premium to the down side for q4 2019 and q1 2020 – watch the aud and Australian risk ex Aud quoted gold miners.
Gold bottomed in August 2018 gold completing a wave C correction as the base for a likely major breakout attempt in 2019. Gold has a bullish target $ 1490 by yr end which given the secular US$ market is intact, this is meaningful. It is possible that gold priced in some currencies makes new highs inc AUD gold. Silver is the +beta outperforming gold but the alpha investment case for 2019 remains the explicitly bullish – gold mines.
Bonds – bullish bonds. After a tactical yield bounce into Q2, US 10-year yields should likely slide towards 2.00% and where AUD 10-Year yields could break their 2016 low into Q1 2020 forecasting Australia’s first likely recession since 1991.
Charts and Detail to follow..