Category: Currencies

Update

Posted on Posted in Commodities, Currencies, Macro, Solar Cycles, Stocks1 Comment

The Dow made a new high yesterday but closed beneath it. The other indices did not yet see new highs.

The Hang Seng has made a pretty compelling breakout – a successful backtest of a bull flag and then a pop today with China data good again and the Shanghai Composite performing well.

The threats of declining and negative Economic Surprises, weakening US leading indicators, and Spanish CDSs close to record highs, all remain. But for now, equities look technically bullish. I continue to expect some weakness to occur into this coming weekend, so let’s see how today unfolds.

The latest POMO schedule was released here and shows a programme of both buys and sales, not making much of a push or pull either way.

Commodities look to have potentially made an important trend break here.

Source: Chris Ciovacco

Certain commodities are still at extremes of pessimism or bearishness. However, yesterday’s positive US data and hawkish Fed tones have pushed up the dollar and pulled back gold. The commodities complex may struggle if that holds. Euro PMIs today may affect sentiment one way or the other.

In short, good reasons to fancy commodities here (China growth signals, excess pessimism), but as always patience may be required.

The latest solar maximum prediction from Nasa was released and continues to forecast a solar maximum in Spring 2013.

Source: NASA

Update

Posted on Posted in Commodities, Currencies, Macro, Solar Cycles, Stocks3 Comments

The sun has woken up. Current sunspots are more in line with a rising trend.

A geomagnetic storm is in progress, so caution. But the extended geomagnetism forecast continues to show a flat to upwards trend ahead, which should provide support for risk assets.

I have updated all the short term and medium models, on their relevant pages.

Economic Surprises for major economies finally went negative yesterday – a bearish development.

Source: Bloomberg

European PMIs were weaker than expected, suggesting Europe is not out of recession yet. Leading indicators for Germany and China came in positive.

The US dollar remains undecided in the nose of its triangle, but running out of room. I maintain the expectation that the FOMC outputs may push it one way or the other.

Source: Stockcharts

Spain, Italy and France CDSs continue to rise. Portgual CDSs have fallen away and out of the limelight. But the bigger trio have the potential to overwhelm the markets if this continues.

Apple earnings today after the bell.

Charts

Posted on Posted in Commodities, Currencies, Stocks3 Comments

The first chart shows the Aussie dollar broke out of a falling wedge and successfully backtested, which previous marked new bullish uptrends in stocks and commodities.

Source: Chris Kimble

This second chart shows the Indian Sensex in a similarly bullish technical formation.

Source: Market Letters

The third chart shows that Dax sentiment washed out fairly swiftly, echoing AAII sentiment for US indices, making upside appear more likely  than down, from a contrarian perspective.

Source: Animus

And the last chart shows capacity utilisation as a US economic proxy, revealing the Fed has kept rates too easy recently, making significant inflation ahead more likely.

Source: Scott Grannis

All four charts make pro-risk look attractive right now. Shorter term I am still looking for upside into the end of this week, and will then review whether or not to sell my bounce equity longs. There are more important earnings first, and I am aware the uptrend in place again since yesterday could yet be part of a longer B wave that began a week ago, in an ABC correction down. Alternatively, given how quickly capitulative breadth was reached, the low could already be in and a revist of the highs coming next.

This Week

Posted on Posted in Commodities, Currencies, Macro, Stocks14 Comments

Friday’s action was a reversal of Thursday’s strength, including a potentially decisive channel exit for Apple, and Spain CDSs reaching new highs.

I maintain the expectation of upside into the end of this week, into the new moon. There are some key US earnings out this week. Last week’s opening set produced a beat rate of 75%. If Spain becomes more accute, or earnings disappoint, and we make a lower low on the indices, I’d be looking for more evidence of capitulation or positive divergences, such as on the Nymo. Only Spain debt is showing signs of stress currently. There is no notable contagion elsewhere. However, it is a large economy with peak debt rollover requirements this year, so clearly a threat.

Economic Surprises remain in their overall downwards trend, whilst still positive, and ECRI leading indicators remain in their uptrend, now at 1.4% positive. PFS recession leading indicators show no current likelihood of the US slipping into negative growth.

Gold miners are into week 9 of a potential perfected DeMark buy set up this week. The US dollar is pressing for the decisive triangle breakout against the Euro.

Two great posts by Tiho at his Shortsideoflong Blogspot on Friday and today.

OK, to sum up, I expect a push up in stocks into the end of this week. If we get that, I may exit my bounce longs. If not, I’d look to add more lower down on signs of capitulation or positive divergences. In the medium term, I still expect overall sideways action for stocks, with global leading indicators still on the up, but economic surprises on the down, with us having seen no regular major top indicators at the March top, and having fairly swiftly reached oversold Nymo and a washout in bullish sentiment. I maintain the better opportunities are in gold and miners, which are due lift off. But the US dollar may hamper this. Continued stress in Spain debt may weaken the Euro versus the dollar.

Update

Posted on Posted in Currencies, Macro, Stocks6 Comments

China GDP came in lower than expected but new lending much higher. Ryan Puplava makes the case for the Chinese economy and stocks to be bottoming here.

Source: PFS Group / Wolfe Trahan

If so, that should provide a push on commodities.

William Dudley of the NY Federal Reserve yesterday suggested they were ready to deploy QE3 if things deteriorated, which adds to the recent mixed messages but perhaps provided one reason for gold and the Euro to rally yesterday. The US dollar index has accordingly dropped to the bottom of the triangle nose.

Source: Stockcharts

Clearly, the triangle is running out of room. Spain CDSs remain critically high, though Italian debt sales yesterday went better than expected. US earnings are only just getting going, but Google last night beat expectations. US economic surprises made a leap up yesterday, but so did surprises for all the major economies. I remain of the expectation that the dollar will eventually break down, in a commodities finale, but in the shorter term I am not sure which way this will break. Sentiment still gives no clues either way.

AAII bullish sentiment for stocks has collapsed, following the recent correction in equities.

Source: Bespoke

This collapse perhaps echoes the swift collapse in the Nymo and move to capitulative breadth in that we might expect upside in stocks from here rather than downside. Capitulative Breadth dropped from 7 to 2 following yesterday’s rally, so back to neutral. We often see a positive divergence in Nymo to mark a low, which could mean a W bottom in stocks. There is a geomagnetic storm in progress today. Combined, we could see a pullback in equities shortly, to make the second half of the W bottom, and this is perhaps echoed in having reached the backtest of the broken uptrend:

Source: Andrew Nyquist 

Positive pressure should resume into the end of next week and the new moon, following the passing of the geomagnetic storm.

This Week

Posted on Posted in Bonds, Commodities, Currencies, Macro, Stocks18 Comments

On the macro front, a persistent dropping in Economic Surprises (echoing last year) makes it likely the stock market rally will soon pause or end, if it hasn’t already begun that process. However, we still don’t see a general set of extreme overbought/overbullish indicators in equities. If stocks continue to go up and surprises continue to decline, then a short will become more attractive, but I would be looking to other factors in assessing how attractive.

Source: Bloomberg

One such factor would be the potential resumption of debt worries to the fore. Spain is the only country looking likely to do this currently, with Portugal, Italy and Japan CDSs going the other way. But as can be seen from the Spain chart, previous highs are not that far off again. If this upward trend continues then it is likely to scrape at global bullish investor sentiment.

Source: Bloomberg

Another factor is China. Concerns over a slowdown are playing on commodities, and new orders surveys have produced mixed results. China doesn’t want to cut interest rates whilst maintaining that property needs cooling, but is more likely to cut bank reserve requirements again in April. Until evidence becomes more persuasive of China easing and/or China growth improving, this is another potential dampener on US equities sentiment.

Source: Danske Bank

For now then, investors, particularly in US stocks, remain unconcerned about economic surprises, Spanish debt and China slowing, but this is often how it works. The bull extends as negatives grow, only for a sudden collective shift in sentiment, with participants becoming of the view that the market has moved too far, too fast. Of course, if surprises start to improve again, Spain does something to ease CDS pressures or news from China gets better, then equities and pro-risk in general could yet advance further.

One other macro factor to mention is that the latest POMO schedule has been released and net sales begin April 9th. That may be another downward pressure factor, as per McClellan’s relationship chart between the two, that I previously posted. Countering this, the Bank of Japan added to stimulus last week.

A look at treasury yields and the dollar reveals a delicate position in both. 10 year yields completed their obvious move up to the s/r line shown, and now the question is whether they can penetrate and rise above that line, or whether that was just a counter trend rally. The Fed’s actions and words may have some influence in this, and the next FOMC is April 24/25.

Source: Stockcharts

The US dollar index is likely to break one way or the other soon. As per with treasuries, dovish or hawkish words or actions from the Fed are likely to play into this, but also the general macro factors listed above, and their pro/anti risk connotations.

Source: Stockcharts

Gold and miners remain overbearish and should therefore likely soon take off. Soft commodities rallied on Friday as inventory reports revealed steeper drops than expected for corn and others, but broadly speaking commodities are languishing versus equities, so we likely need a confluence of factors to bring about sustained strong gains.

There will be no posts or model updates now until 11 April, as I am away on holidays, and taking a proper break from the markets. I will respond to mails/comments on my return.

Roundup

Posted on Posted in Commodities, Currencies, Macro, Stocks6 Comments

Last week gave us a correction in stocks, but upside resumed yesterday. Apple continues to print topping candles and then reversals. Broadly speaking, indicators are not screaming overbought or overbullish, so for now the medium term uptrend remains in place.

Bernanke’s dovish comments provided a trigger yesterday for gold and miners to move up, which was in line with the overbearish extremes both had reached. Oil continues to range trade but in what looks like a bullish flag. The Euro and Dollar are at an important decision point.

I have updated and extended my short and medium term models (see pages of those names). There is some near term downward pressure next week into the 7th April. Medium term, the message remains that stocks have run above the models and should now be brought back into range, in overall sideways action.

US earnings begin again 10th April. Profit margins are at a record and historically this has been mean reverting. If earnings start to disappoint, then coupled with downward trends in economic surprises, that would make further upside difficult for stocks. However, earnings may not disappoint, so let’s see. Here are suprises:

Source: Bloomberg

Quite a downtrend in place since the turn of the year, and unless this turns up then stocks should eventually exit their uptrend. Here is the updated overlay of the surprises index on the S&P500. In both recent examples of 2009 and 2011, once the surprises index topped out, the stock market moved from uptrend to sideways/down consolidation a few months later.

How’s Euro debt? Here are Spain and Portugal 5 year CDSs. They remain in their longer term uptrends. Unless they can break down decisively, then it suggests Euro debt will come to the fore again at some point in 2012. Let’s see.

Source: Bloomberg

Trading-wise, I am currently doing nothing. I am hopeful that gold may now take off, with yesterday’s trigger and the overbearish extremes reached, and I am well positioned for that. Oil looks strong, both technically and fundamentally. Agriculture is picking up again, slowly. Again, I am positioned for both those. The Euro-Dollar remains finely balanced and I continue to monitor. I have a negligible stock indices long position. I do not wish to short equities, whilst leading indicators continue to improve. I do not wish to go long equities, whilst divergences build in surprises and geomagnetism. I am awaiting a more clear cut opportunity in stocks, whenever that comes.

Markets Update

Posted on Posted in Bonds, Commodities, Currencies, Macro, Stocks5 Comments

Yesterday’s upward thrust in stocks, on good breadth and volume, supports my favoured scenario of a push on into 21-23 March.

There is a potential divergence in % stocks above 50MA that could spell a period of sideways range action after that.

Source: IndexIndicators

A significant divergence is now present on my medium term model for the S&P500, whilst noting that the Dax is on model, having been playing catch up from underperformance.

A couple more sessions of contined upside for stocks and we will start to hit overbought and overbullish measures again. I still have a couple of stock indices longs and will be looking to exit them at the end of this week or the beginning of next if that occurs.

A key development yesterday was an upwards break in treasury yields – the rounded bottom is gaining momentum. There is a large wall of money in treasuries that could start to flow towards risk assets.

Source: Stockcharts

My expectation, based on my previous analysis, is that commodities should be the main recipient, and that commodities should outperform stocks leading into next year’s solar peak. Yet, what we are currently seeing is the opposite.

Here are commodities versus the medium term model – very much on model. Yet I was anticipating stocks aligning with the model whilst commodities pull away. So what’s up?

The US dollar is strong again. Good economic data from the US is helping support the USD, as well as no further indication yesterday of more, or further extended, dollar-diluting programmes. As I previously noted, the US dollar is in a delicate long term position, which I expect to break downwards, helping propel commodities to their secular conclusion. However, right now we lack a trigger for that, and with fairly neutral sentiment towards the Dollar and the Euro, that doesn’t give us a reason either.

Of course a strengthening USD does not make a commodities rally impossible. Another key factor is China. Recent Chinese data has been softer than expected, and whilst expectations are for Chinese easing/stimulus, as yet the Chinese authorities are being cautious. Here are the latest OECD leading indicators, and whilst we now see a definite up turn in most countries, China isn’t following suit yet.

Source: OECD

Here’s gold. The smaller wedge is the first potential reversal opportunity. Failing that, the confluence of long term rising support, falling s/r and the 23 fib look like the next most likely bounce point.

Marc Faber is still a longer term gold bull, but anticipates gold could fall to $1500 here. Such a move would put it below all the key moving averages that have supported the secular gold bull to date and so I think it’s unlikely, but, much like the USD, it is delicately poised, and I am closely following both.

What’s Ahead

Posted on Posted in Bonds, Commodities, Currencies, Stocks5 Comments

FOMC tomorrow. First major Bradley turn on the 16th March. Major Gann turn around the Equinox 21-23 March, which equates to the next top on my models. US Earnings Season begins again 10th April. Seasonal geomagnetism to peak in March-April and sunspots to ramp up again in the weeks ahead.

Take a look at the damage from the solar storms of the last few days:

That is an impressive spike. Now take a look how the models have tipped over on my Short Term and Medium Term models page. The message is clear – a market correction, or at least some volatility, is due. So I reiterate what I suggested at the end of last week: I expect either the markets to tip over and correct imminently, or for them to continue higher into 21-23 March, make a significant divergence from the models in doing so, and then correct.

Economic Surprises for both the US and the major economies continue to fall away from their peaks, and here’s a reminder of how stocks performed in 2009-2011 after Surprises twice peaked (blue line):

Essentially, upside was limited, the market was on borrowed time before it corrected. That said, the ‘borrowed’ time could last a couple of months, so I would want to see evidence of the market topping out from other sources, before shorting. So how do things look?

Insider selling continues to be at an extreme. Short Yen positions are also at the extreme. The former suggests stocks should pull back, and the latter that money should pour into the safe haven Yen. But these two aside, we don’t see extremes. The consolidation in pro-risk has reset some of the indicators that had were toppy, suggesting more upside may be required to reach an overbought and overbullish reversal.

If we look at the technical picture for the S&P500, we see it is flirting with its 2011 high, with potentially clear air above if it can break out, but also that it is within a rising wedge which would normally break to the downside. For my first scenario above of imminent correction, the index could potentially double top today with its high of the start of March, reversing at that horizontal resistance. For my second scenario of a push upwards into 21-23 March, the index could break out but within the wedge and overthrow to 1400 before a correction.

Meanwhile, the US dollar has been rallying, which has taken the wind out of commodities to some extent. If the Fed is dovish tomorrow, extends Twist or similar, we could see a reversal, and precious metals gaining ground again. However, if they do nothing, the USD could maintain popularity. It remains in a very delicate long term position, and whilst I continue to believe that it will ultimately break to the downside in a mirror of the 1970s, we need a trigger for that to occur.

Source: Stockcharts

I look at both precious metals and at mining stocks and see evidence for a big move up coming up, but not quite yet. Fed action tomorrow could provide a trigger, but failing that, a little more time looks needed. Treasury bonds continue to make a rounded top, yields a rounded bottom. If this is the prelude to a notable change in trend, then the Fed may have a reason to step in.

OK, let me sum up with my favoured scenario: stocks push on higher into 21-23 March, making a big divergence from the models and reaching overbullish/overbought again. I think that would then make for a nice shorting opportunity, and a subsequent period of mean reversion. I suspect that because most indicators have eased off from being toppy we need to push up to hit extremes again. Those extremes, plus some big divergences, would make for a higher probability trade than right now.