So ends another week in the capital markets. Last week the technicals confirmed the macro fundamentals so that this weeks move was pretty inevitable. Everything fell into place in last week inc the inverse correlation of equity markets to the dx weakening. Although the macro picture seems to be worsening every day that passes (as commented on the forum area) when we look at the charts they aren’t as technically bearish short term as we may be feeling..
Firstly the all important DX
The DX (dollar index) has a technical resistance in line of sight. She is over bought using the cci. Technical levels can blow over without a fight but with so many short the euro and so many long the dollar and over bought indicators flashing red the probability is that the level will hold for now and some profits taken. Fundamentally this may be hard to accept but a few weeks of softer news events would assist no end to calm things down. As would central bank interventions at this level which nicely fits with the eurusd level at 1.32 as below.
We see from this that we are at a key level on the eurusd. The DX above is mainly constructed from this pair. The usd has been performing more positively vs the JPY and the GBP has room to fall a little more vs the USD so the DX level can mathematically be hit without the eurusd falling below her 1.32 support.. lets see. I will play a bounce if we get a spike through. If not no problem.
Next up the ES futures on the S&P500 index. Americans main market index of 500 largest corporations.
I fully expect the 1125 level to come into play and this area to be the key near term area for support or not. If this area blows over we are really in trouble and looking at the 1078 sort of level thereafter. From a purely technical standpoint the 1125 level could provide for a high high and the last stopping off point for the bull to stay alive. If she falls over the 1078 comes into play and even worse than this the technical damage to asset markets would be immense. Usually a long period of consolidation would follow such a move. Of course in a world where money itself can be altered in quantity and the push of a computer button such technical comments are almost completely worthless. Its worth hearing the technical comment but tossing it away if/when Ben and the team press those buttons. What we can say is without the banking system increasing money supply and without the central banks increasing money supply this chart is very ominous and only the near support at 1125 may provide the last real chance at keeping the bull alive. The ym (dow) looks very similar so ill leave her for now unless someone shouts they want a run through. Here next, the nas100 or nq futures.
Its not a disasterous chart by any means, yet! The problem here is the way we sliced through the support at 2190 or so. The move had been flagged clearly by the continual inability of price to breakout to new highs. The technicals suggested the nas100 would give up a decent move and so it proved to be, out performing the es and ym to the downside. The move has produced a deep cut through the support and now we have this level as a serious resistance before any move north can convincingly be rejoined. (In a money printing environment clearly such technical barriers may be easily overcome). Near term 2120 or so may come into play. Again much like the sp500 above a key area to keep the bull alive or not as the case may be. These charts have both run up very quickly on money printing. The move downward without more money printing may be equally as fast. (A quick reminder on the monetary environment we live in increase there are new readers here. Maintaining your balance sheet size as a central bank does not represent more money printing as what is important is the margin increase month on month in the money supply. Maintaining money supply at a constant level does not assist even in a low interest rate environment. Money supply must grow in a debt and interest based fiat monetary system). In short balance sheets must expand and expand very soon if this bull is to keep moving forward. There is, as yet, no significant indication that consumers will add to their debts unfortunately although students in Europe and the US are making an excellent effort to increase money supply all by themselves.
Next up the CRB. Commodities index. This is not a promising chart especially when you consider nymex crude WTI is just shy of $100 and Brent is over $100.
Much of the weakness here is coming from the industrial metals as well as the agricultural grains which are struggling to cling to their bull trends. Wheat looks bad. Corn a little better. Copper weak and weakening. etc. Oil is better as said but the CRB uptrend is in danger until some monetary juice hits the decks. 300 looks like a key support for the CRB. If/when oil weakens itshard to imagine the crb holding on to this trend. The result of losing her trend would be pretty disasterous for most of the commodity stocks especially the juniors.
Gold continues to be one of the best performing instruments in spite of the recent US$ strength. Russia bought another 20 tons or so through October we hear.
Gold in most currencies aside from the USD rose in the last few days which we cant see from this USD priced gold chart. Gold very conveniently has technical supports at 1650, 1600 and 1550. Any spike to 1550 would most likely be a buying zone. So for now we watch and wait would be my technical comment. Silver looks less promising and the silver miners even less promising but their charts another time.
I’m afraid i’m out of time for now on these technical matters. I wanted to cover more but we are off to Italy for a birthday party and a short break. Back to it from Tuesday. The UBS technical comments will be out on the 29th.
In summary, for now we have near term supports on all sorts of instruments in line of sight. It would be wrong to chase the recent bear moves therefore. Lets get the relief rally done and see where we are. The macro news flow will be facinating to watch. Its hard to see any ray of light at all from the euro zone. With such a bearish macro picture re the debt implosion in euro land (and the cds contagion issues that could result) its also wrong to go naked long asset markets in spite of the near term likely rally scenario. I don’t have time now but bring up the charts of any of the major euro banks and for that matter Goldman Sachs or BAC in the US. Their charts are a disaster and show not obvious signs of a bottom, at all. In such an environment its very hard to see how much of rally can be sustained even as earnings continue to come through ok for now due to the inflationary nominal up draft created by printing presses.
The very best to all.. I hope everyone is ok. These recent markets have been tricky and 2011 has all the appearances of being either a negative or break even year. Many super star hedge fund billionaire managers have lost a packet this year so keep this in mind before you beat yourself up too badly. I have an ‘uber’ strong suspicion that 2012 will be a stella year for asset markets and likely a disasterous year for holders of cash and government bonds. Our challenge will be avoiding the financially repressive legal framework that will inevitably go with the mountains of freshly printing confetti.
Again, the best to all.. Rich
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