We have a complex multi asset technical stand off here with price not confirming either bear or bull camp either way here. And on initial price confirmation we have to also be prepared for a confirmation and then failure scenario as this is the classic formation for a momentum move. We have the Fed and BOJ in the next 24hrs so we have the potential for market volatility here. For volume entries I’m looking for patterns (flag patterns or reversal bars, triangles that break and then fail etc) long or short. These reversals will likely be key and they should correlate across key instruments to be real. Any move that is slow is unlikely to be sustained due to the pressure we have here looking for trend as we are.
As we look the shreds of evidence it does seem important that the cyclical sectors lead this higher and they are failing to confirm the return of the bull. Transportation, mega tech caps & Soxx should be doing better than are. The Euro & Jpy are relatively surprisingly strong still for bulls. Oil needs to keep rising. Copper is not joining. American consumer cyclical stocks are doing well as is the housing index rising near vertically 30% in 6 weeks or so but deeply over bought. If the American consumer is doing so well then why is the more domestically Russel2000 doing so relatively badly? On the near term momentum and breath has weakened and non confirmed the recent highs.
Both bull and bear camps can make a fairly reasonable case here and present various charts and comparative historic reference charts to confirm their case. So we must monitor this as it develops and of course watch and listen to policy makers response in the next 24hrs and beyond will play a crucial role in where next here. This is very much like 1998 as has been discussed before. 1998 policy played a crucial roll in thwarting the bears so its entirely possible that policy again puts off the inevitable and reverses the natural path of the market.
For my book, my base case remains as was. That we have a bear market across world equity indexes and risk markets and that this is likely to resume soon enough. That we have clear evidence of weakness in US equities via lead sectors and domestically focused indexes. Currencies have not yet confirmed the return of the bull. Having said this i’m now very open to the idea of an inflationary ending to this bull market with commodities and cyclicals leading the charge higher in spite of a rising US$ just like the 2000 peak. Either way we have a decent move coming. The size and breadth of move is the important issue. So long as it is powerful, which it looks likely to be given the setup, there will be clear opportunities to catch a decent part of the move, either way.
A small technical point on last night’s apple numbers. Apple is the biggest cash earnings generator for the nasday and the sp500 with earnings down 22% and 26% down in sales to Asia it appeared more than a hiccup for the world’s largest company by value.
And here the swiss team’s latest comments:
They are certainly right to mention Silver. We covered the breakout trade a few weeks ago on the forum pages on silver. Precious metals have a bid, volume and volatility again. They are tradable again and this is a good omen for the patient secular bulls that averaged down on the precious metal miner asset class. Wider commodities have a bounce but have not confirmed even a cyclical bull market resumption as yet so we see. Notably copper has not joined yet so we must remain open to both camps. If the 1998 technical scenario plays out we are approaching a golden period indeed for the metals and miners here. If the risk off correction camp plays out the bullion is also likely to nominally fall alongside all assets but on a relative basis rise. The reflation, post the correction in risk, would likely be lead by heavy headed monetary policy tools which would open the door to the resumption of the secular bullion bull. Either way 2016 is a pivotal year it seems.
And here CB continuing along the theme of the 1998 base case
The AUD broke down last night which doesn’t help his case but otherwise he case is intact. I agree the eurusd is about to resolve and the move is likely to be a decent one. The last thing the euro indexes (eurostoxx50 or the nik225) needs is a strong euro and or strong JPY. The BOJ tonight. I’m tactically long both indexes playing the bull rejoin but i will quickly reverse if the fx debasement doesn’t confirm. Macro wise European earnings are growing again (in euros).
Here GS
Some useful comments from GS, notably the long eurostoxx 50 conviction 3 rating with a target of 3316. Nik225 if through 17800 then 19360 beckons. I don’t share their conviction there but i am in these trades and see them as the beta bull rejoin. Both of course depend on policy makers “juicing” their paths.
For a moment a macro comment on Japan. Things are not good at all in the land of the rising sun. So many macro data points are disastrous. The worse it gets the more policy makers generally are tempted to implement insane strategies that are a trader’s dream. So lets see what the BOJ produce tonight. Paying banks to make loans is one heavily tipped strategy. We see what lunacy is adopted next but as a general comment the worse it gets the easier the trade becomes simply due to heavy handed policy.
A v2 release coming.
All the best
Rich