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. 

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