With Jerome Powell installed at the Fed and tax reform on track, our charts tell us a bounce in the euro, yen, Swissy, CAD, and pound is a more likely outcome as the USD moves down to $24.40 as measured by UUP, writes Ziad Jasani of the Independent Investor Institute.
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Global Equity Markets (Offense): A light week ahead for economic data, with equity markets at or near all-time-highs but short-term technical tools warn of a draw-down of -1% to -3% in the week ahead.
Trump’s tax reform path must remain intact to keep Mr. Market high, without interruption from North Korea while Trump visits Japan.
Last week’s bounce up off the median of up-trend channels has reached another moment of exhaustion, reversion to the mean and/or the bottom of trend-channels is a higher probability outcome.
With the bulk of Q3 earnings in the rear-view-mirror, a pocket of air is ahead of us.
If the S&P 500 (SPX) is able to sustain above 2,590, we project up to 2,618. Similarly, if the S&P/TSX Composite Index (TSX) sustains above 16,000, we project up to 16,105. Yet, the more likely outcome is to find the S&P 500 moving towards support of 2,500 and the TSX to 15,775-718 (support).
A short-term reversal on the US dollar (USD/CAD) dragged down by U.S. Treasury yields is likely to create a reflationary trade in EEM, EFA, FEZ, while the S&P 500, Nasdaq and TSX under-perform.
Aligning holdings to lower sensitivity areas: Bonds, Gold, Defensive Equity Sectors remains the higher probability strategy into this week, while continuing to hold onto better cyclical charts XBI, XPH, XLV, IBB.
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Global Bond Markets (Defense): With Jerome Powell (Dove) in place at the Fed, and tax reform moving forward, Treasury yields remain pointed downwards, but not a strong enough move on the day (Nov. 3) to engender buys on Bonds. Bonds are relatively cheaper than equities, and yields remain relatively expensive suggestive of more inflows into fixed income this week and outflows from Equities.
We maintained our pick-ups on TLT, XBB-T, LQD from Oct. 27 over the weekend, but do not see cause to add (yet), just tighten stops.
Defensive Equity Sectors (XLU, XLP, XLRE, VNQ, XST-T, BCE-T, XRE-T, ZUT-T) and Preferred shares (CPD-T, PFF) remain on tap while major equity indices stay high, but fixed income is preferable.
Global Commodity Markets: Oil is dislocated and expensive but holding above ~$55, chasing the upside is unwarranted for long-term investors as Energy Equities depict extreme expense on annual routines.
Shorting Oil (HOD-T) is becoming a setup this week, no confirmation as of yet. We remain “hands-off” energy after successfully entering on Oct. 27 and exiting on Nov. 1.
NatGas was picked up on Nov. 1 and we remain long over the weekend (UNG, HNU-T). Gold/Silver/Miners broke-down Friday Nov. 3, but are holding above major support structures; a turn in the USD is expected allowing us to enter said issues into early this week.
Global Currency Markets: The USD remains dislocated and expensive on annual routines while every other currency is polarizingly cheap.
With Powell installed at the Fed and tax reform on track, our charts tell us a bounce in the euro, yen, Swissy, CAD, and pound is a more likely outcome this week as the USD cools off (moves down to $24.40 as measured by UUP).
We remained long the yen (FXY), CAD (FXC), Swissy (FXF) over the weekend. Our long-term acquisition of the USD during August/Sept. 2017 is paying off. We still see the USD rising to its 200-day average after a cooling off this week that is more than likely tied to jitters around Trump’s tax reform.
Join experts at the Independent Investor Institute for a three-hour in-depth online workshop, covering Equities, Bonds, Commodities & Currencies on Saturday, Dec. 2 12 pm (EST): CLICK HERE TO REGISTER FREE
