Markets
So where are we here and now and where are likely to move to in the near term.
Asia over night was weak. Singapore, HangSeng, Nikkei down over night. No particular fireworks although the Hangseng showed the best chance of producing fireworks particularly at the end of the session.
I refer you to the very good technical analysis on the shanghi:
http://www.stocktiming.com/Shanghai_Daily_Stock_Market_Updates/shanghai-index-update-friday.htm
DM equities are struggling again this am having recorded their best straight session gains for some time to Thursday.
Review of last few weeks
To take a step back, the up move came following a trend break on almost all indexes across the world. (The events leading to the break was hard fought at with much chop). When the move down came, as we said at the time, it was uninspiring clearly lacked real meaning in spite of key levels and trend lines being broken.
For technical traders, the recent bounce up has been very narrow and volume lite and successfully brought price very close to yoy highs again on what looks to be the perfect failed breakdown on the multi year trend up.
But the move northward thus far has also been highly suspicious due to this lack of volume, flight and narrowness. Depending on your entry or hedge, it was right to wait to see how price reacted to the first signs of selling to see how robust or otherwise the move north is. (Only on a contest can we see how stubborn the longs are).
We got a test eventually on Thursday, after the 900 point move on the dow. It was another fast move with the result volatility is rising considerably across all asset markets. Purely on a technical basis, price pushed back northward in spite of the news to produce a strong close into Thursday evening. The diabolic jobs data pushed her back southwards on Friday..
Present
As we stand here now, there are cross currents on the near term direction.
In the very short term we have momentum to the south given Friday’s failure of the Thursday evening move to rejoin trend. Levels wise a move to 12350 to 12140 looks likely. The up move was too fast and too lite technically to sustain. Price needs a better foundation to really push onwards in a sustained way. We are also very close to the resistance of yoy highs in many markets. It is against the back drop of cash being trash. Participants want to believe in the recovery. This is very clear. They want to hold assets and take a yield. No one wants cash so only when they are ‘forced out’ of their positions will price really role over. The price action is confirming this thesis.
http://www.flickr.com/photos/65045749@N04/5925754920/#/photos/65045749@N04/5925754920/lightbox/
I maintain my hedges. I may lose them if I see a decent contest between longs and shorts which convinces me the move north will sustain. The narrow, volume lite move in the last 10 days was unconvincing thus far although the ‘cash is trash’ issue in a negative yield environment is certainly encouraging participants to hold no matter how bad the data becomes it seems, hence sp500 relatively high pe ratios. In a negative rate world any yield and real asset becomes attractive but this produces highly volatile markets therefore.
Like a pressure cooker I suspect the heat will gradually get worse until the lid blows off and we get a pressured move to the south. As it will be ‘pressured’ it will be extremely hard and fast the longer it is put off.
Of course renewed and reinvigorated monetary stimulus and expansion could come to the ‘rescue’ of equities though the unintended consequences for commodities and the usd would likely be disastrous.
FX wise..
All currencies (one or two aside) have negative yields. Participants are paid to borrow. There are great incentives to hold assets. Almost all currencies are trash and the race to the bottom continues on. The USD continues to win this race for the moment but as equity index trends broke the dx is threatening to break her recent yoy down trend.
http://www.flickr.com/photos/65045749@N04/5925807522/#/photos/65045749@N04/5925807522/lightbox/
This recent strength is coming from all currencies commodity and dm alike.
Eurusd. The euro broke her 3 year down trend vs the usd at a time as the news flow on the euro was a disaster. I continue to read this as essentially positive euro but the price action recently has looked like she has failed to push on with lower highs and lower lows. 1.38 or so to the usd look likely in the near term.
http://www.flickr.com/photos/65045749@N04/5925816754/#/photos/65045749@N04/5925816754/lightbox/
On some side issues I notice copx was nearly back to her highs, gold is close to break again. Oil I have commented technically on a post yesterday. Silver continues in her recent range.
This has been a weekly catch up post hence is longer and more complex than daily or so market updates. Ill try and comment in the next few days depending on the price action where ill widen the instruments covered.
No fast moves at present, evidence and patience to catch the trends has been the best way to generate returns yoy from my experience. There are plenty of headwinds, earnings season is with us. Lets see.
The price action will tells us where she desires to go and remains our best indicator.
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