Good evening guys,
Apologies for the delay in posting. The long expected weakness in risk markets hasn’t shown as yet but the stresses remain in place (eg divergent 52 week highs for many indexes) despite some renewal in the cyclical themes, eg the Soxx making new all time highs or +40% in the last 3 months or so.
US Risk
Over the last few weeks the forcast has been for the increasing selectivity/rotation in the US market. From late
February into March we saw significant (6% to 14%) set-backs in the broader market and cyclical sectors, whereas
defensives outperformed on declining yields. The ongoing rotation was the reason for the resilience of the SP500 and the higher reaction low, which the market posted into later March as the trigger for a rotation from overbought
defensives back into cyclicals. After last week’s aggressive rally, cyclicals are again short-term overbought. Together with the SP500 heading into a minor top projection it remains the base case that the market will likely move into a deeper April trading top for a short/limited pullback into later April. Into early summer it remains the probability for an underlying bullish projection but where further deterioration in index momentum via a classic distributive market environment.
February into March we saw significant (6% to 14%) set-backs in the broader market and cyclical sectors, whereas
defensives outperformed on declining yields. The ongoing rotation was the reason for the resilience of the SP500 and the higher reaction low, which the market posted into later March as the trigger for a rotation from overbought
defensives back into cyclicals. After last week’s aggressive rally, cyclicals are again short-term overbought. Together with the SP500 heading into a minor top projection it remains the base case that the market will likely move into a deeper April trading top for a short/limited pullback into later April. Into early summer it remains the probability for an underlying bullish projection but where further deterioration in index momentum via a classic distributive market environment.
Tactically the distribution we are seeing over the last 5 or 6 trading days demonstrates the SP500 should remain short-term capped at 2900. The focus however should remain on buying the dips in cyclicals instead of chasing the broader indices on the upside. Trading support is last week’s breakout level at 2860. A re-break would suggest a pullback towards 2785/2760 into later April. On the upside, early summer remains the likely time window for the top of the wave B rebound cycle and where we should expect the SPX to reach 3000.
It should be noted that the VIX shorts are reaching extremes which is starting to signal extreme volatility ahead. the short positioning in the VIX index moving back into extreme territory provides the risk of another volatility event over the next few weeks and into early summer is clearly increasing. This indicator provides an indication of the probability of a “mini crash” type event. From a cyclical aspect, the earliest time frame for such an event in
June19.
June19.
European Risk:
After the impulsive and aggressive rally in cyclical sectors from the late March reaction low, Europe
again is short-term overbought. Tactically, the EuroStox50 is likely short-term capped on the upside and set for a limited pullback into later April before we expect more upside into early summer. Index-wise, we expect the sequence of higher lows to remain intact with 3280 as a key price support. Into early summer we expect the Euro Stoxx to test 3500/3550. Sector-wise, buying the dips in cyclicals into later April should remain the focus. In defensives we would use strength to sell/take profits where key sectors such as food remain record high overbought.
again is short-term overbought. Tactically, the EuroStox50 is likely short-term capped on the upside and set for a limited pullback into later April before we expect more upside into early summer. Index-wise, we expect the sequence of higher lows to remain intact with 3280 as a key price support. Into early summer we expect the Euro Stoxx to test 3500/3550. Sector-wise, buying the dips in cyclicals into later April should remain the focus. In defensives we would use strength to sell/take profits where key sectors such as food remain record high overbought.
FX Mkts
Momentum in the major FX pairs remains low. The selectivity in the USDvis increasing where in the EUR we see a classic oversold bounce but where in the Asian/EM complex we have a breakout attempt underway, leaving our tactical view unchanged. On a very short-term basis, we can see a pullback in the USD into deeper April but as long as the DXY trades above 95.82, we remain underlying bullish-biased, where into deeper summer we expect more USD strength particularly versus the Asian/EM block. USDCAD is has mixed signals with the longer term pattern remaining strong but the Cad experiencing a bid from its positive correlation to the strength in the oil price.
Asia/EM Risk
Most Asian markets are back above their 200 day moving averages and the MSCI Emerging Market is moving towards our next target at 1100. Short-term, however, Asia/EM is overbought and with initial momentum divergences and increasing selectivity (India losing momentum, Korea underperforming, versus China/Taiwan outperforming) a short-term pullback into later April appears likely before another bounce into early summer. However, with more US$ strength likely versus the Asian/EM complex, we wouldn’t be surprised to see Emerging Markets topping out earlier than developed markets and underperforming into deeper summer.
Commodities
Crude oil is reaching its next big target at $64.00 (62% retracement of 2018 bear cycle). Crude is
overbought, it trades in a minor wave 5 and we see crude on the way into a 2-months cycle peak as the basis for a tactical pullback into later April. However, with strong seasonality and while trading above $58.20, the underlying trend remains bullish into early summer, where we can see crude oil reaching $69. Gold, has seen a corrective pullback from its late February trading top. An important tactical bottoms is forming (1280 as an important support) and where platinum outperforms (testing its 2016 downtrend). With constructive patterns, we see gold and silver as likely bounce candidates but where gold needs to break $1324 to open a more significant breakout campaign.
overbought, it trades in a minor wave 5 and we see crude on the way into a 2-months cycle peak as the basis for a tactical pullback into later April. However, with strong seasonality and while trading above $58.20, the underlying trend remains bullish into early summer, where we can see crude oil reaching $69. Gold, has seen a corrective pullback from its late February trading top. An important tactical bottoms is forming (1280 as an important support) and where platinum outperforms (testing its 2016 downtrend). With constructive patterns, we see gold and silver as likely bounce candidates but where gold needs to break $1324 to open a more significant breakout campaign.
Bitcoin remains in her tactical bounce pattern but her trading is erratic with large lumpy moves in either direction. Whether its anything more than a corrective bounce remains to be seen. There is no evidence of anything more than this for now.
All the best
Rich