More selling yesterday, but then intraday reversals that produced hammer candles (stocks, oil). Hammer candles often mark bottoms, but capitulative breadth still didn’t trigger. Ryan Puplava compiles some oversold indicators and divergences that are suggestive of an imminent rally, but he also notes that market breadth has weakened.
This is how the SP500 stands. There is a trio of supports coming together around 1341, if we head lower, and that would potentially put us sub RSI 30.
The Russell 2000 has either made a triple bottom or is playing out a large head and shoulders to a considerably lower target.
Stocks are reaching towards overbearish but sentiment could drop lower yet before a reversal.
Stocks are heading towards oversold, but could also drop further yet to reach extreme.
The Chinese stock index needed to make a higher high to confirm a new bull trend since the start of 2012 but has pulled back at a double top, shown. If it can break out, it will be suggestive of China growth and associations with commodities.
10 year treasury yields are back to all time lows.
30 year treasuries back to all time highs.
I have added to short treasury positions. Doug Kass is bearish on treasuries here (hat tip Juan), calling it the trade of the decade.
The US dollar remains in a range, despite the Euroland troubles. As yet this is not resolved.
Spanish CDSs have nudged back up, but other than Greece CDSs, Euro debt hasn’t catapulted up again in this fresh round of fear.
Right now, it looks like 2010 and 2011 again – mid year pro-risk retreat with Euro debt back to the fore and slowing growth. I find it hard to believe we will see the same again, as the market always likes to surprise. So what if not that? Well, the run up into the solar peak is typically one of growthflation. The mid year should be lower geomagnetism, by seasonality, which is supportive. Sunspots should continue upwards, which is supportive. And stocks generally fair well mid year in US election years. I suggest therefore that we need either a natural pick up in growth here (economic surprises ticked up for all regions yesterday but we need to break the downward trend; China and emerging markets could take over as the driver) or we need central bank assistance, such as ECB action to deflate Euroland issues again, and the Fed to replace Twist in June. But either way, I rather expect we will see a more pro-risk friendly mid-year.
Gold miners’ cheapness relative to the gold price, overbearish sentiment and oversold RSI sub 30 make them still a great opportunity here, I believe. I added to long gold miners.
Source: Andrew Nyquist
Silver is sub RSI 30 and overbearish sentiment. I added to silver longs.
Crude oil is also oversold. I added to oil longs.
Orange juice has halved in price since the turn of the year due to ample supplies, but is now oversold and extreme overbearish. I opened a long OJ position.
Nothing (so far) has shifted me from my view of how things will play out into 2013, namely a commodities surge, and even if I were wrong, oversold AND overbearish assets eventually mean-revert. If we move further to extremes in commodities, treasuries pricing and sentiment in the sessions ahead I will add again. These are great opportunities, in my view. The picture for equities is more in the balance, with some indicators of a bottom but some reasons to expect further selling. Developments in the macro picture need close monitoring, as evidence of a pick up in data or government intervention could cause a surge, or equally, continued deterioration could cause a big sell-off.