Global equity markets: Buy-the-dippers are not being met with enough “fresh” buyers, although they’ll try to start the week buying. S&P 500 looks to start a drawdown (-1% to -3%) and TSX shows more vulnerability, writes Ziad Jasani of the Independent Investor Institute.
Watch Market Strategy video session recorded Monday, Nov. 13:
Global Currency Markets: Short-to-mid-term (days to weeks) we find the USD relatively expensive vs. almost every other currency. This implies any disinflationary data, or further troubles with Trump’s tax reform would push the USD down towards its 50-Day Average (UUP $24.24), while FXE (euro), FXF (Swissy), FXY (yen) get a bounce and FXC (CAD) holds up but struggles on Oil unwinding.
We would expect a small bounce up on the USD at support of $24.40 (UUP) as a risk-off move for Equities starts front half of this week, followed abruptly by Eurozone/German GDP data Tuesday morning that pushes the euro up and USD down.
While Equity traders/investors decide on whether to “buy-the-dip” defensive currencies like the yen (FXY) make sense into the release of Chinese Industrial Production Monday evening – expected to miss forecast - and into Japanese GDP data Tuesday evening.
Japanese GDP is expected to meet or beat consensus. Longer-term (weeks to months) we see the USD as having turned the corner, assuming U.S. tax reform remains on track and is not diluted-down from initial plan.
The USD (UUP) is likely to be back above its 200-Day Average over the next month.
Global Bond Markets (Defensives): Junk bonds broke down last week, coupled with tax reform jitters, both leaving credit markets in disarray. However, inflationary pressures are not spiking up (globally), implying the current rout comes to an end over the next week.
We see US Treasury yields as expensive (alongside equities) while Bonds remain relatively cheaper. We are expecting a risk-off tone towards equities next week along with weaker PPI & CPI data from the U.S., suggesting in-flows to fixed income are likely, swing-low formations on TLT, XBB-T are expected mid-week for pick-up.
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Global Commodity Markets: Oil remains dislocated and expensive on trader’s routines, supported by fear from King Salman’s “coupsolidation.” Oil is showing signs of fracturing at highs, with a re-trace to $55 expected.
We entered Nov. 10 short-oil (HOD-T) and maintain this position over the weekend. Natural gas is almost out of room, terminal value of our trades on UNG, HNU-T from Nov. 1 is nearing – Natural gas is likely to turn down under $3.27.
Gold was “whacked” Nov. 10 on US Treasury yields spiking, as investors/traders prefer the pound/euro/yen & USD for liquidity.
Gold/Silver have a better chance to bounce post the release of Japanese GDP (Tuesday evening), we’re likely picking up GLD/SLV into the close Monday-Tuesday. Base metals are out of favor front end of the week but are likely to get a currency-based bounce Wednesday, Nov. 15 to close the week (currency being USD softness).
Global Equity Markets (Offense): Buy-the-dippers are not being met with enough “fresh” buyers, although they will try to start the week buying.
However, the S&P 500 (SPX) is showing the classic signs to begin a drawdown (-1% to -3%), and the S&P/TSX Composite (TSX) shows even more vulnerability.
We entered Nov. 10 holding inverse trades on the S&P 500, Nasdaq, Dow, Russell 2000 and TSX (SH, PSQ, DIA, RWM, HXD-T) and maintained these trades into the weekend.
If the S&P 500 breaks the median of its up-trend-channel (~2,570) we are likely to re-trace to the bottom of the channel ~2,530 – 2,500.
If the TSX breaks below 15,943 we are likely to see it meet with support at 15,775-718 or lower. We maintain a risk-averse posture into week of Nov. 13.
Join experts at the Independent Investor Institute for a three-hour deep dive on markets Saturday, December 2, 12 pm (EST). The session will be held online, click this link to register directly: CLICK HERE or send Ziad an email with your request: ziad.jasani@educatedtrader.com
