May have seen on twitter that last week that I enjoyed a killer day on the boat to the cove of some small outlying islands. Love being back in Hong Kong and I’m already wanting to move back!
Still running the same theme I’ve had for a month which is looking early and partially wrong especially in the value vs large-cap theme. But I’m still encouraged by what I see on the charts and how I see narratives playing out with reasonable degree of confidence…
Risk-off to stabilize this week?
Risk-off saw a USD breakout and selling in higher-beta FX. Commodity and UST futures also reflects the risk-off and safe haven bid last week but most notably, US equities sold off and made yet another very impressive late week recovery.
Asia hit the worst…
Developed markets holding up okay…
Developed markets EFA (Bottom-Left), German DAX (TL) and UK FTSE100 (TR) all finding support on the 20wma. China Large-caps (BR) at lows but at a historically strong price base. Overall picture suggests selling could ease, consolidate, or even reverse seeing the big recovery in US equities.
Value/Growth…
RTY YM long / NQ short spread trade — I like the charts for another cyclical rally but there isn’t many positive stories at the moment for the market to rally on; which leaves dovish speak from the Fed which I think is very possible given the prolonged uncertainty of global recovery. They will probably reiterate the distinction between tapering and rate hikes and should be positive for risk. I am therefore maintaining my underwater position for the time being.
Something to beware of with OPEX behind us..
The upward sloping Vix curve continues to gradually shift higher and the rising volatility premiums for 1 (blue) and 3 (red lines) standard deviation moves reflects the cautious sentiment — US equities fairly overbought and nervousness around Fed policy.
Commodities reversing?
Commodity charts are generally showing a cluster of technical levels that should provide some relief to last-week’s selling. Crude has seen a big correction and could fin support this week at the 200dma around the $60 mark. Copper is slightly oversold but looks like there is some room before more solid support at the 50wma around 3.90. Precious metals has been on the slide with a stronger USD but could be on the bounce around current levels. I like the idea of scalping on the long side of precious metals this week.
My FX exposures…
USD move is looking over-extended and has begun to pullback at the end of the week. Pairs are oversold at meaningful tech levels and if risk calms down and turns more positive this week, I fancy the pivot to follow through. I have accumulated exposures in the above pairs since 20/21 of July and will continue to maintain them anticipating the return of some cyclical appetite and a more patient and cautious Fed than projected in prior months.
