Apologies for the delay in posting this. This is last week’s update but the analysis is sound and I will update in the next 48hrs with the latest print.
US Risk:
After the early March risk pullback, following the tactical pattern, where into option expiration you often see the market holding up its 30 to 60 day trend, a bounce into expiration was the probability and it played out perfectly before the probability dicates another pullback is the likelihood starting into end of March and more likely into early April. Despite last week’s bounce and the SP500 hitting a marginal new reaction high, the depth and selectivity in the US has been further increasing. The rebound in the Russell-2000 and most cyclical sectors is v.likely corrective with these sectors forming a lower high. The leading defensives and technology are overbought,facing resistance and/or losing momentum. On this basis it is very likely that the Sp500 has hit her minor trading top on Friday last week and this level forms the basis as the setup for weakness into end March/early April.
- Level wise the SP500 is technically capped around 2840 cash. A re-break below 2817 would be initially negative and suggest a pullback towards 2722/2700 into early April.
- Within this ongoing sector rotation, the market remains well supported. With expecting a minor wave c pullback, early April weakness in cyclicals is an opportunity to buy/add, whereas defensives we see vulnerable for a tactical pullback.
European Risk
Over recent weeks, with the exhaustive overshooting heavy-weighted defensives (“yields low
forever”), Europe has been gaining strength versus the US. Although the Europe bounce into expiration was expected, the prior Friday high momentum breakout in the Euro Stoxx has nonetheless surprised. With trend work diverging at overbought extremes, and following our US call, Europe is due for a short-term pullback. However, without any real top building pattern and an ongoing sector rotation (telecoms in wave 3 and where autos and banks are the next breakout candidates) near-term pullbacks into end March/early April will be limited in price. Likely to the 200-day moving average at 3280 or thereabouts, whereas at 3400/3450 (DAX 11900) the market is likely short-term capped.
Macro Analysis:
On the macro side, the Fed gave dovish guidance last week, and which could provide to be the trigger for higher cross-asset volatility into first half April.
FX Risk
Early March overbought USD was clear for our suggested short-term pull back. But again, as long as we do not see the DXY breaking its late February low at 95.82, we remain underlying bullish USD, where this week we expect the DXY to move into a minor trading bottom as the setup for another bounce and new breakout attempt into April but where we are wary of the increasing selectivity. The USDCAD promises much and the pattern long holds but the dovish fed has slowed momentum and some sideways movement could sustain albeit with the usd bull trend remaining as the underlying.
Emerging Market Risk
Selectivity has been increasing over the recent weeks. In Asia recorded marginal new highs
in China, Taiwan, where India massively outperforms, and where in the broader context we have bullish breakout patterns in Turkey, Brazil and the Russian RTS. Generally, after the recent corrective pullback the MSCI EM is re-testing its late February top at 1070. On a short-term basis, another near-term pull-back into early April is the probability before more strength into early summer. However, an immediate break of 1070 would be bullish and suggest at least short-term a potential overshooting towards 1100 but with selectivity to remain high.
I’m pressed for time to say more but i will update in next 48hrs. Its been a strong start to the year for my book. I hope all doing well here.
All the best
Rich