Long-term U.S. dollar cycles looks ominous, reports Jeff Greenblatt....
View from Toronto: Risk and Opportunities in the Week Ahead
09/11/2018 1:33 pm EST
Ideally, a bounce comes with Technology and trade war-related spaces leading in North America, while the rise in the USD remains contained and markets outside of North-America (ACWX, EFA, EEM) outperform, writes Ziad Jasani. He’s presenting at MoneyShow Toronto.
View my Market Strategy Session here.
Recorded: Sept. 7, 2018.
Risk and opportunities in the week ahead
Our swing-barometer, the S&P 500 (SPX) closed +3.5 points above its 20-day moving average (2,868) on Friday Sept. 7 at 2,871.7 with a grave-stone-doji (bearish-candle), accompanied by most short-term technical tools (RSI, MACD) warning of more downside-risk to the 50-day average (2,827 roughly -1.5% away).
However, the day started on a positive note (led by Technology), diametrically opposed to the reaction we received on Feb. 2 when US wage inflation spooked Mr. Market, leading to a correction into Feb. 9 (where we printed the lows for 2018 2,532.85 S&P 500).
Our Trading community made the prudent decision not to buy into the equity-negativity, rather we wait for clear signs of a swing-low on the S&P 500 early in the week.
Precious Metals are the likely tell that a short-term (days-to-a-week) bounce for Equities is in play; Gold must hold above $1,200.
The backdrop into next week is actually more favorable to a bounce than many would expect; but we maintain that any bounce from here is likely quelled into the back-end of September.
What behaviors ending Sept. 7 support an equity-market bounce this week?
• Precious Metals held support (Silver gained).
• Markets outside of North America presented double-bottom chart patterns.
• USD strength was contained under resistance.
• Oil presented a bullish-reversal.
• Despite NAFTA woes the Canadian market outperformed and presented a bullish reversal holding > 200-day average.
The swing-trading game-plan for the week ahead
Criteria for the Bounce:
If the S&P 500 holds above its 20-day average and we see Gold holding above $1,200 even as the USD mildly rises, we’ve likely got an Equity Market bounce in play.
Technology and Dow must lead within North America, accompanied by North America’s Commodity-Index (TSX).
Events to catalyze the bounce:
Our economic modeling suggests the following flow for the week ahead.
UK GDP starts the week on a positive note (Monday morning), followed by German Economic Sentiment building risk-on sentiment (Tuesday morning).
Oil Inventories support a bullish reversal on Oil (Tuesday/Wednesday) while U.S. Producer Prices (Wednesday morning) act to soften the USD.
A pivot down for the USD (Wednesday) is entrenched on Eurozone Monetary Policy Statements (Thursday morning), followed up by Chinese Industrial Production data picking up on recent yuan devaluation (Thursday night).
Friday holds more down-side risk on an expected softer U.S. Retail Sales and Confidence Data, which likely serve to further weaken the USD and allow flows to tilt towards commodities, currencies on the other side of the USD and Equity Markets outside of North America.
Targets to acquire (with clear intention to sell into the end of September 2018):
If the week starts as planned, we look to leg into. If markets persist with down-side-risk we’ll be scrapping the bounce-plan and looking short
• Technology: QQQ, XLK, IYW, FNG
• Industrials: DIA, XLI
• Materials & Miners: XLB, XME, GDX, SIL, XMA-T, XGD-T
• Financials: XLF, KBE, KRE, XFN-T, ZEB-T, ZWB-T
• Canada (TSX): XIC-T, XIU-T
• Commodities: USO, UCO, HOU-T, DBC, DBB, GLD, SLV, CGL-T, CPER, SLX, KOL
• Markets Out-Side North America: ACWX, EEM, EWZ, EFA, FEZ
• Currencies on the other side of the USD: FXC, FXB, FXE.
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