Just the kind of week and Jackson Hole event I was looking for…
Big reversals across the board as risk assets and currencies rally.
EQUITIES
The highly cyclical RUT and TAIEX led benchmark indices last week.
While SPX NDX pushed to new highs, global sentiment via MSCI World ex-US and Emerging Markets ex-China is looking more constructive after a strong week.
As with EEM (Emerging markets), FXI and KWEB charts are all showing a Weekly DeMark 9 buy count suggesting a bullish pivot.
This bodes well for the RTY long vs NQ short (Value/Growth proxy) to which I wrote last week:
“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.”
Good thing we got some dovish speak on Friday, but the Value factor is still somewhat lagging even though the rally in small-caps has put my index exposure back in the Green…
RATES
Global bond yields got a lift last week with US yield curve finishing steeper especially after Powell’s dovish taper message where he clearly made a distinction between conditions for taper and hikes.
Similar dynamics also seen in other instruments e.g. Fed fund and SOFR.
COMMODITIES
Gold attempting to sustain a breakout and Copper reversal validated last week. Crude making a full recovery from the prior week’s sell-off, while NatGas up almost 14% last week…
Interestingly, 10year seasonal chart for NatGas shows a strong rally into August month-end and a choppy September month.
Overall commodities index (top) is breaking out of consolidation, and excluding the big moves in Energy futures last week the ex-Energy index (bottom) is showing some typically bullish consolidation.
FX
There are good signs above that the cyclical rally could have legs while charts are supported by narratives of a more patient and FAIT-oriented FED and, fresh concerns of a slower recovery and loosening of supply bottlenecks. Also Hurricane Ida is reported to be bigger than Katrina (which had caused extremely widespread damage back in August 2005) and could hinder progress as another risk to central bankers.
Lots of data this week before NFP on Friday but unless something materially changes or risk looks vulnerable to a sell-off, I still maintain a big picture pro-risk and yield curve re-steepning view and remain short USD JPY EUR vs long AUD and NOK in FX.
Wishing you a good week trading!
