Akamai Technologies (AKAM) seems built for the coronavirus quarantine and may be one of few companie...
View from Toronto: Strategies & Tactics for Stocks, Bonds, Currencies
08/14/2018 2:53 pm EST
What does price behavior closing out week of August 6-10 tell us? An orderly decline, with additional downside-risk for the front half of the week the week of August 13, writes Ziad Jasani Sunday.
View my weekly strategy session here
Recorded: August 10, 2018.
• The Global Equity Market (ACWI) is in a confirmed swing-high formation and below the 50% retracement level of Jan. 26 highs to Feb. 9 lows closing above its 200-day average but not depicting enough strength, implying a move down to $71.97 or $70.50 completing the sideways-channel-pattern-move.
• The World-Ex-US (ACWX, EEM, EFA, FEZ) is causing the bigger drag as the risk-off trigger is Emerging Markets, which is infecting the Eurozone Far East & Australasia. Lte June 2018 lows have not been taken out, but short-term bearish momentum suggests they are tested before a bounce up can occur.
Note: If EEM & EFA do not test late June 2018 lows, but make a higher low, it would be termed a bullish-divergence opening the door for Strong Buys to play a bounce.
• S&P 500 (SPX) closing below 2,835 implies more down-side risk; a break and implied closed below 2,824 implies down-side risk to the 50-day average 2,785 – this is a more likely out-come vs. a bounce higher to open the week.
• Nasdaq or “Technology Engine” is below its danger-line 7,850.
• Dow or the “Industrial-Material Engine” is below its danger-line 25,373 pointed to 25,000.
• TSX attempted to cling to its 50-day average (16,340) but closed slightly below 16,326; a break below 16,285 opens room for a drop to the 200-day average(15,949).
• Our Global Risk-Ladder suggests an orderly decline that persists only for a few days followed by a bounce up with haste.
• Relative routines globally suggest that the next Global-Equity-Market bounce is led by the World-Ex-US.
• S&P 500 Volatility Index > 50-day average implying more likely equities point down to start the week.
• Overall: We’re looking for a few more days of equity-price weakness before a bounce up that we can play. We do not see August 10 as the beginning of Correction 2.0. We ended the week net short (or long inverse ETFs): S&P 500, Nasdaq, Russell 2000, Dow, Emerging Markets, Eurozone and long Volatility; while maintaining Hold decisions broadly in the TSX (with tight stops) and have closed all if not most of our short-to-mid-term long-side swing-trades within the U.S. markets. We did a long on Oil over the weekend.
• The Global Bond Market continues to present as dislocated and expensive on traders’ routines, but is likely to sustain a bid as the current risk-off event for markets plays out to open the week; no significant break-outs have presented on the current basing pattern for Bonds suggesting a further rotation into fixed income is warranted at this time, but playing out trades for the next few days works.
• US Treasury yield charts suggest a further flattening into this week but a steepening in the back-half of the week is expected when the 10-year yield bounces up off of support at 2.807%.
• Emerging Market Bonds (EMB) sold off with Emerging Markets (EEM) on August 10 affirming the negativity has legs into the week of August 13.
• High-Risk-Credit (Junk Bonds – JNK, HYG) are holding-up through the negativity with Oil adding further evidence of an orderly decline for Equities.
• Overall: Bonds are likely to enjoy a few days of upside, prior to Equities bouncing and Bonds generally swinging high under the top end of basing channels.
• USD (UUP) continues to charge higher as a safe-haven through the current risk-off event August 10; however, the stark dislocation (expensive) suggests either a “new-normal” is forming or reversion to the mean (downwards) is to kick-in in the week ahead; If the EUR/USD breaks below 1.1350 we can side with a new normal being established – If the EUR/USD bounces up off 1.135 we are likely seeing the Equity-Risk-Off event ending and see opportunity in currencies on the other side of the USD.
• The yen (FXY, USD/JPY) maintains its defensive status through the current risk-off event, a swing-low in the USD/JPY would be an early indicator of Equity sentiment turning risk-on.
• The Canadian dollar (FXC, USD/CAD) was bullied down by the Saudis during week of August 6 – 10 and despite strong Jobs data on August 10 and Oil reversing positive the sell-off continued on August 10 we maintained long DLR-T over the weekend. Wewill be looking for a strong bounce on the CAD with Oil when sentiment turns risk-on for the global equity market. In effect we are looking for a swing-high on USD/CAD near 1.3204 and a bounce on FXC at $74.60.
Overall: The strength of the USD is likely to pivot weaker closer to Wednesday, August 15 timed with the release of U.S. Retail Sales which we are expecting a meet-to-a-miss on vs. the consensus estimate. To open the Week (Aug 13th – 17th) we are expecting further USD strength and euro weakness, but are expecting the yen to hold its ground, which in-turn is likely to keep Gold toggling between $1,220-$1,216 holding it back from a bounce; a bounce on Gold above $1,220 is expected on Wednesday.
Join Ziad at MoneyShow Toronto Sept. 15 when he discusses Portfolio Management Strategies for Active Investors. Information: ZiadJasani.TorontoMoneyShow.com
Related Articles on MARKETS
During the stay-at-home environment, young people everywhere are engaged in mobile games. Mobile gam...
Here are the markets and sectors to focus on in trying times, writes Mike Larson....
D.R. Horton (DHI) is one of the largest homebuilders in the U.S. The company benefits from a broad g...