The Swiss team produce another excellent report. Everything from market internals to mathematical over bought indicators, divergence between momentum and price as well as sentiment indicators are suggesting a near term correction or extended range consolidation period for equity indexes. (I could add leverage levels and low volume ratios as well vix and a number of other market indicators as demonstrating a likely near term correction).
The single large issue that is missing here is a distributive price signal, according to the team. Price is not testing or back filling this bullish wave. We need to see some evidence of a distributive top before really taking meaningful profit or short ‘risk’. To do prior to seeing any distribution in price would be to take on much risk as low volatility bullish waves can extend on for surprisingly long periods.
If we are to see a near term test here of the bullish trend we need to see volatility increase and a distribution occur. For the moment exploratory shorts to test near term ranges seems like a wise tactic to me along side taking some profit off the table on extended instruments/sectors eg the euro finance sector as one example. (SX7P).
The comments on the HUI index is interesting. For my own book i’m not increasing allocations to the HUI (GDX and SIL) but i am running numbers and modelling entries on another option call position on this sector as my jan 2013 call option position has now expired with mixed results at the end of the day. 30/15 against me to use a tennis analogy but the game and indeed the set and match are a long way from being concluded.
The team don’t ref the cyclical sector index and they don’t ref the ‘materials’ sector which have been disappointing especially given their pro cyclical calls. Given the rally has room to extend to the upside for h1/h2 this sector must be watched for if they are correct the materials sector has much upside although near term weakness looks likely here and now.
The other single issue worth picking out here, near term, is the pound weakness. The pound has collapsed vs the euro on all near term charts losing 7% of her value in four weeks. She is deeply oversold and at a key long term (4 year) cyclical support vs the euro. There is no specific price signal of an impending resumption of the cyclical gbp bull vs the euro but given the technicals a near term correction looks extremely probable. Following some price distribution there is no reason why the gbp cyclical bull cant sustain on the long time frame. Though that is a more complex longer time frame call.
Without more delay here this weeks report, in flash format (apologies to iphone uses).
http://www.capitalsynthesis.tech/wp-content/uploads/2013/reports/Wk-tech-29-01-13.html
Rich
(10 votes, average: 5.00 out of 5)
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