What a week it has been.
We have seen volatility to the upside and then crashing downward across risk on. The Sp500 broke her 2025 level and her 200 dma. She is bouncing here to currently her 50% retracement level but has scored significant technical damage to lead indexes like the US banks, Transports. Across the US sectors we had signals of the problems inc the QQQs, Consumer discretionary, health, housing, Soxx, etc..
The April highs were always the key technical level for a continuation of this cyclical bear market. Whilst Soxx and the Sp500 confirmed the move most did not. Banking, Health and Housing just about cleared their April highs but it was a whisker and on failing momentum. None ever showed an entry signal long. They never looked convincing.
The non confirmation camp included many key cyclical sectors inc transports, QQQs, Consumer discretionary, broker index.
I wont go through all the various sectors globally but non US indexes were weaker generally and coming off some very bearish charts. Key indexes like the euro banks and Dax and Ibex35 put on a good show pre the new wave lower but never cleared some key levels. We now have new lows on france, spain, portugal, italy and the big and very extremely toxic, euro banks. Europe needs to clear its bank’s solvency issue if she is to make much progress here. Note the swiss comments on the euro indexes if the feb lows are breached, which they were, as above.
Tactically the beta Europe price formations provided for some difficult trading setups. If you were trading the thin Ibex35 it was easy to get caught. A wonderful triangle price formation coming from a bearish chart usually gets resolved by a move lower. Price did indeed break down inc momentum, price reversed quickly though and may well have caught many stops and then subsequently crashed. The Ibex is a thin market of course. Price on the Dax traded more fairly but still showed a violent level of volatility and retrace. But no matter if Dax or Eurostoxx50 or Ibex the wider euro indexes were a difficult trade to land.
Here the Ibex35 chart i’m referring too:
Its very rare such a level of retracement after a sell signal with momentum occurs from a pattern like this. You have to take what you are given is also true. Even high prob trades occasionally knock you out.
Nik225 wise we also have got a lower close than the Feb low. The USDJPY a clear 10% lower now than where she was back in Feb16. And note vs the Chinese Yuan. In the race to the bottom Japan losing at present.
Asia looking much stronger. HSI, HK index, STI in singapore, etc, showing little momentum to the downside. Showing some evidence that a base is in. No buy signal but on a relative basis stability and some strength therefore. STI needs to hold the 2750 area.
Looking ahead here, we have a bounce from over sold levels off the back of a news event. Price rightly retracing much of this move and then we have the test. We have some nice clear levels across indexes here (on the qqqs the 106.2 level on spy 206.2). The US bank index bounced but its not convincing at all. The technical damage has been scored and price needs to move much more to convince that this was a news inspired sell off and nothing more.
FX wise, the eurusd is the key pair and aside from a minor move to weakness by the euro the pair have been very stable in spite of the volatility world wide. You have suppose the pair are being “smoothed” at present. Technically this range has now held between 1.05 to 1.15 or so eurusd for 18 months now. It looks very much like a consolidation ahead of the next significant move. We scored momentum to the downside on this latest weakness. We have a mild retrace bear flag pattern from over sold levels at present. Price should rejoin the prior momentum downward soon, chose your level. Macro wise, the rate differential is compelling. No demand for euro carry trade true but who would be a buyer of the euro unless balance sheet downsizing by the euro banks. The euro banking problems are clear and present and at the least volatility beckons and likely euro weakness. Inflation differential widening between US and Euro zone.
Here Fitzpatrick prior to the Brexit news event:
Post Brexit and the technical damage just about everyone in the market is looking for a position short the euro vs the usd.
And here SC with their FX report:
Also wanting to get short the euro.
Here SC’s take on brexit:
And here SC on global mkt outlook:
sc-h2-0utlook-navigating-headwinds
Here EGU with their sell on the solstice piece making their cyclical case :
It all makes sense but i think policy makers need to be watched. If they roll out the big monetary guns it doesn’t matter what your cyclical model suggests. Monetary magic can always make nominal prices rise even if relatively they fall. As we are paid on the nominal moves this matters!
Here Peter Lee with his latest technical run through of the major US stocks:
I have to say he is in danger of looking like a perma bull here. Several of the charts like the consumer discretionary stocks and a few of the financial look less convincing to me with falling momentum and a set of lower highs. However its also true that there still exists an awful lot of strength in US stocks and especially on a relative basis. I therefore buy into to the swiss team’s view that post this July sell off the US indexes are likely to see higher highs into 2017 before this secular US bull is truly toast.
Here RBC on USD rates.. pushing them out once again.
And here ms on the FX side:
Finally on bullion. All roads appear to be leading to gold and silver here. We have more banking weakness and insolvency partly driven by poor EU regulation, ECB governance, incomplete banking union, excessive leverage and opaque balance sheets. Nirp polices are also helping to destroy margins on credit and debit sides of the bank’s balance sheets. Yields on even riskiest assets have fallen to levels where minor rises in default ratios drive any positive yield negative. The shadow banking system has been encouraged by the central banks as traditional lending has remained subdued. The search for yield has lead to the ABS being bought by many non traditional and lightly regulated organizations. Risks have been taken at any cost as yields collapse. Inflation expectations are rising even as world growth flat lines. Earnings growth non share adjusted are negative and expectations are once again being revised downward. Further monetary juice looks likely even as inflation rises. The perfect scenario for gold is rising inflation expectations with non standard monetary tools with stagflation. This is exactly what occurred in the 1970s and as productivity is so poor and capex so low with monetary authorities so willing, it appears a likely scenario very soon.
Here Commerz with their commodity daily report:
China stepping up those imports of the yellow metal. And that’s in spite of her own mining efforts. China is accumulating a significant gold reserve securing her nation’s wealth. Or as Warren Buffet puts it a large worthless yellow cube of metal. History will show who is right in this respect.
Watch those levels.
As im sure you are waiting here the Swiss team’s comments:
Note some key support levels coming up soon on some key us sectors. Ie good short price points are coming up soon.
More to come..
Rich