Looking back at the last decade in financial markets using the lens of normal distribution linear-regression channels we glean from the major macro-variable chart that we’ve reached a turning point for swing traders and longer-term investors, writes Ziad Jasani Monday.

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View my weekly strategy session video here.
Recorded: Nov. 26, 2018.
Duration: 59:06.

The Global Equity Market (ACWI) has broken below the median of a decade-long regression channel after peaking in January 2018.

This is implying that longer-term investors should be selling into bounces to close out 2018, while swing traders can enjoy playing both sides.

Major corporations tarnished the growth outlook as they reported stellar earnings for Q3 2018.

Long-term up-trend formations (originating early 2016) for North American Equity Markets broke during Red October.

Economic data continues to plateau in North America and weaken in the rest of the world underpinned by trade wars, nationalistic policies and working-class wages not keeping pace with the real costs of living. This is all pointing to a global recession sooner (late 2019) than later (2020).

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Bottom line: Slower growth coupled with tighter monetary policy has left investors less confident that the Bull can continue charging. We can’t rule out a bounce into year’s end while North American Equity Markets hold above the bottoms of their year-long consolidation patterns but a bounce, not a new long-term up-trend is all we can expect.

In fact, during our last Strategy Session we qualified why the short-term market backdrop supports a bounce in the week ahead, but the signals to enter weren’t present to end last week.

Quantitative Tightening and interest rate hikes by the Federal Reserve have taken the 10-year Treasury Yield (TNX) 2-standard deviations away on the expensive-side of what has been normal (~2%) for the last decade, underpinning 2018’s USD (UUP) strength.

Trump’s trade war has focused currency flows towards the USD and away from most of the majors (euro, pound, yen, CAD), which are in and of themselves plagued with issues (Syrian migrant crisis, PIIGS, Eurozone banking system, debt load, Italian deficit spending, Eurozone/German manufacturing growth peaking Dec. 2017, Brexit, Broken Japanese Government Bond Market owned by the BOJ, and recently an oil slick).

If growth is slowing, central bankers are less likely to continue normalizing rates, juxtaposed to a flood of new paper being pushed into bond markets to pay for exorbitant government spending just to maintain the status quo; together this implies that yields are less likely to rise rapidly into 2019, but at the same time increased bond supply is less likely to make Fixed-Income a safe alternative to Equities; long-term government paper would be our focus vs. corporate.

As recently as last week we’ve started to hear that the Fed is becoming more hesitant to maintain existing plans to raise rates as growth slows. In fact, the market has started to price down 2 to 3 hikes in 2019 to 1 to 2.

Bottom line: We see a mid-term (weeks-to-a-month-and-change) plateau or consolidation pattern for the USD ahead, which may imminently create a golden opportunity for precious metals and related equities (GLD, SLV, GDX, SIL, XGD-T).

In the week ahead, our estimates suggest that the US GDP (Q3) Wednesday, Nov. 28 and the US Core PCE Price Index (inflation) Thursday, Nov 29th, act to soften the USD while Chinese Manufacturing Data Overnight Nov. 29 and the G20 meetings Nov. 29/30 wash each other out leaving some optimism for growth.

This dovetails nicely into the decade long normalization of the Global-Commodity-Complex (DBC) suggesting an equity bounce tied to any hope for growth coming from G20 this week can rescue Oil for a short-lived bounce (WTI Crude Oil, Brent).

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