Sunday, 30 January 2011

Cross roads across markets

Generally speaking the market has been lining itself up at a cross roads and this applies for most asset classes. It is still the same old story between USD vs anything else. TMN has been leaning towards the side of the USD in the medium term and gold for the long term whereby it has been difficult to be long USD over the past two weeks. TMN however believes that a major buying opportunity in USD is unfolding in front of our eyes and most other asset classes' behaviour is backing this view up. 

TMN is amazed with the number of charts that look horrible after this past Friday. We could show them all if you have a week... Below you will find a small best of collection that shows that the current crossroads could be linked to something larger. The run up to this cross roads felt like it lasted forever but now we are here and TMN believes the trading opportunities coming up will be immense. 

Since 2007, VIX has given 3 SPX related sell signals, and all 3 were generated whenever VIX bounced off the 16 level . Additionally, we also had two extreme SPX sell signals that were generated with a VIX weekly close above the 38 level; the first being just before the Lehman collapse and the second one in May last year. TMN believes that the extreme selling last May was also averted/contained  in some way by the usual suspects.

So far VIX has bounced off the16 support level, initiating in that way another SPX sell signal. It has also closed above the mid-BB, and as a result, a trip to the 23 level and the upper-BB is in the cards to start with.

Also 1 month vol over 3 months speaks for itself

One of the two has to break down. So far it has been very hard to understand if the mkt has identified a long term trend there. It seems that everybody will again be looking to the government...

With obvious results elsewhere...

..and as expected small caps are underperforming...

Crucial for all of the above to play out as expected is the USD.

A weekly close above 80.16 seems a first realistic target, achievable quickly, and thereafter TMN will be looking for the long awaited breakout thru 81.44. Once that is achieved the general perception on the USD might shift meaningfully in a sense of people will be starting to see higher lows from 2008 on this chart. 

Sunday, 23 January 2011

Credit Crunchy China

We start with China and SSEC. An interesting point that TMN would like to show is the symmetry, in terms of points gained, after the long holiday break in 2009 and 2010. As it can be observed in the chart, SSEC opened with a gap up and gained exactly the same amount of points in 2010 as it did in 2009. If the 2010 pattern unfolds similarly to the 2009 one, then we should see further losses on the index going forward.

Furthermore, liquidity in the Chinese markets seems to be giving alarming signals. The 1 month SHIBOR has been going up for some time now and is hitting levels that we experienced back in October 2007, when the US stock markets topped out.

Staying on the Chinese markets and taking into account that the Baltic Dry Index has been falling apart, makes TMN to believe that there is something brewing in China, its liquidity health, and demand for commodities.

Finally, divergences in the US stock markets are all over the place.

TMN's volume indicator is exhibiting a huge negative divergence similar to or even greater to the positive divergence at the beginning of 2009 that ignited the rally off the March lows. Looking at the more short term indicators, percentage of stocks above their 50/200 moving average and the NYMO the picture does not really change.

So what is really going on? Last week we saw the Spanish and the Greek stock indexes rallying like there is no tomorrow......and yes, TMN thinks that there may be no tomorrow for those two countries but on a negative tone and not a positive one as the indexes signalled last week. Maybe this was similar to the short squeeze the markets experienced back in September 2008 just before the Lehman Brothers collapse.
TMN also believes that municipality bonds will affect the stock markets sooner or later; and combined with the European sovereign problems and the apparent Chinese liquidity problem will lead to a very nasty outcome in the near future.

Sunday, 9 January 2011

USD ahead of the crowd again?

Well, TMN would like to believe yes as many growth negative set ups are coming together. The main driver seems to be the USD and it is looking higher. A weekly close above 81.44 would be a hugely bullish signal. This would get a large part of the market suddenly seeing higher lows from 2008 on this chart. 

Gold bounces back versus copper coming back from the QE2 related decline. There is never any trouble in asset markets without this ratio not only participating but usually leading. 

Do we want to trust the government? See below 30 year bonds versus SPX.

In the very short term risk seems to be rolling over

See also small caps:

For a while TMN has been going on about Spain and the IBEX and it ain't looking pretty at all! In fact its close to a massive break on the weekly charts.