The Markets in 79 Charts

Last week’s strong advance in global equity markets reversed the sell signal recorded in the previous two weeks.

As the adage says, don’t fight the trend ! 

The strength in global equity markets means two things : 

  1. Investors have stayed on the sidelines during the January and February advances and they are now rushing to buy 20 % higher than where the indexes were at the beginning of the year. US indexes are now only 4 % below their September peaks and we cannot exclude the possibility of an equity melt-up, instead of the correction we had been expecting in March. 
  1. The second message of the rise is that monetary place is way too accommodative globally and pushing asset markets to new highs again. Investors expect an economic slowdown ahead, lower inflation and an end to monetary tightening. As a result they are buying risky assets, and the fact of the matter is that real interest rates are sharply negative in Europe, in japan and even in the US.  China has been on the safe side but monetary policy is easing over there and last week’s NPCC meeting clearly articulated significant tax breaks to stimulate consumption and lower interest rates to stimulate credit growth.

In other words, the world economy is back on a highly stimulative monetary bias and as speculation and over ownership was taken away in December, equity markets could rally further.

From a technical standpoint, most equity markets are pointing upwards while being overbought at the same time; a difficult configuration to trade.

Within the global equity markets, European stocks are clearly to be favored while India, Vietnam, Taiwan, Malaysia, Brazil and New Zealand are clearly on a bull trend.

China is overbought, but the Chinese market is still immature and extended periods of rising stocks beyond any technical logic are common.

US indexes are bound to challenge their al-time highs, but valuations are back to extremes and the Russell 2000 does not inspire confidence.

In the currency markets, the US Dollar is undecided and gives conflicting signals…

The problem is that the consensus and the market are way too long US dollars to make the advance sustainable…

On the other hand, Europe’s economic numbers are dismal and the ECB will probably have to resort to un-orthodox measures to stimulate growth again.

A clear break in the DXY above 97.5 or below 95 is needed to give the direction of the next big trend in the US dollar.

The Chinese Yuan is in wait-and-see mode… A resolution of the Trade war will send it much higher, failure to reach an agreement could send the Yuan lower.

Maybe the most salient feature of today’s charts is the number of BUY signals in soft commodities and agricultural products in particular.

From Coffee, to Wheat to Sugar, the levels are screaming BUY, particularly considering the record levels of short positions in the future markets.

Oil is bound to go higher as OPEC meets again this week to discuss output cuts and precious metals are digesting their February correction. It may be a tad early to re-build positions in that space.


EQUITIES


MXWO – MSCI World Equity Index

Major reversal and major BUY signal. Indeed the index is overbought and speculation is back, but fighting the trend would be wrong –  BUY with Tight stop Losses

MXEF – MSCI Emerging Markets index

Don’t fight the trend ! BUY 

MXAP – MSCI Asia Pacific All Countries Index

The SELL signal was stronger in Asia, as China had a phenomenal rally in the first two months of the year. Nevertheless, the momentum could push the indexes higher as India, Taiwan, Vietnam, Malaysia are all positive and China worked out its overbought situation somewhat.  HOLD

Americas

USA – Dow Jones Industrial Index

Last week’s strong advance is not yet a clear reversal as the Dow Jones was held back by the woes of Boeing, another casualty of the Trade War. China was the first country to ground the Boeing 737 Max 8 after the Ethiopian crash sending a clear signal to the domestic airlines.
The Dow Jones index is trading at a massive resistance level. We would not chase this higher and would SELL ON STRENGTH

USA – Standard & Poor’s 500 Index

The reversal is stronger and the SP500 may want to challenge its September high. There is a high probability that the quadruple witching day on Friday had a lot to do in the positive move. However we would not chase this market and would SELL ON STRENGTH

USA – Nasdaq Composite Index

Tech stocks are going higher and will probably test the 8’000 level. Investors are still bidding up companies valued at 60 or 80 times earnings despite the terrible week of Facebook and the congressional inquiry into google and Facebook’s handling of privacy and anti-trust laws.  
SELL ON STRENGTH

Canada – TSX Index

Clearly overbought and ripe for a correction. Canada’s economy is not doing well at all and corporate earnings there will not be spectacular. SELL

Mexico – MEXBOL Index

Mexico is trying to put in a double bottom that will be worth buying if confirmed.  WATCH

Brazil – IBOV Index

Just BUY

Europe

Europe’s strong outperformance last week came on the back of Mario Draghi’s extraordinary measures to lift economic growth in the Eurozone. Technically, most indexes are giving STRONG BUY signals

Germany – DAX Index

European stocks are cheap, monetary policy is massively accommodative and the market is just saying BUY

France – CAC 40 Index

French stocks want to go higher – a lot to do with Airbus and a weaker EURO – but the CA is reaching overbought levels and a massive resistance level that calls fro prudence. we prefer the Southern European markets or Switzerland, Sweden and Netherlands  SELL ON STRENGTH

Switzerland – SMI Index

Swiss equities are clearly overbought but the strength of the move last week calls for a higher market ahead, particularly when taking Ito account the fact that the CHF is about to depreciate markedly against the US dollar.  OVERWEIGHT

UK – FT 100 Index

Hard Brexit, Soft Brexit, No Brexit, political crisis, nothing seems to affect the British stock market and last week’s reversal points to a stronger market ahead.  BUY

Netherlands – AEX Index

Very strong BUY signal last week above the moving averages. BUY

Spain – IBEX 35 Index

Only one thing to say : STRONG BUY

Italy – FTSE MIB 30 Index 

Italy has some more mileage to go but is getting over stretched.  HOLD

Greece – ASE Index

VERY STRONG BUY.  The Greek economy is pulling out of its hole and its public finances are improving fast. This is the cheapest market in the universe on a CAPE ratio basis and one of the cheapest on a Price to book basis.

Turkey – DJ Titans 20 Index

Turkish stocks are overbought and last week’s reversal was a positive signal but not yet an all-clear BUY signal. HOLD

Russia – IMOEX Index

Russian equities are cheap by all standards and could keep on grinding higher.  HOLD

Middle East

Dubai – DFMGI Index

Dubai equities have discounted all the bad economic news of the Emirate. Strong oil prices and the upcoming 2020 will pull the market out of the bear market in place since 2014.  ACCUMULATE

Saudi Arabia – TADAWUL Index

Saudi Stocks are going higher on the back of strong oil prices and economic reforms. HOLD

Asia

Japan – Nikkei 225 Index

Last week’s rebound was comparatively weak and a clear move above the moving averages is needed to become bullish Japan again.  HOLD FOR NOW

Japan – TOPIX Index

Last week’s rebound was comparatively weak and a clear move above the previous high is needed to become bullish Japan again.  HOLD FOR NOW

China – CSI 300 Composite Index

The Chinese Indexes are clearly overbought after their strong advance of the beginning of the year, however, the CSI 300 is still amongst the cheapest markets of the investable universe, China is implementing stimulative policies, MSCI has increased the weighting of China in its indexes and a positive resolution of the Trade War should send the indexes higher.  HOLD

China – ShenZhen Composite Index

Shenzhen equities are extremely cheap and have staged a comeback in the first two months of the year after four years of bear market. The index is over-extended but should be bought on weakness.  BUY ON WEAKNESS

China – HSCEI Index

Last week’s rebound is a positive signal negating te SELL signal recorded the week before. A clear move above the previous high is needed to pile into the market again.  BUY ON WEAKNESS

Hong Kong – HSI Index 

Last week’s reversal and rebound form the moving averages ams a strong BUY signal for Hong Kong Stocks.  BUY

Taiwan – TWSE Index

Last week’s reversal was a strong Buy signal.  BUY

Korea – KOSPI Index

Korean stocks did not reverse last week’s SELL signal. More advances are needed to confirm the higher low and the beginning of a new uptrend.  BUY on Weakness

Singapore – STI Index

Singapore stocks did not join the party last week and the weekly close was not appealing.  BUY on WEAKNESS

Malaysia – KLCI Index

Malaysia is cheap and trading on a major Long term support dating back to 2015.  BUY

Indonesia – Jakarta Composite Index

Indonesian stocks have been ahead of the pack and are now peaking at a major resistance made of the previous all-time high. The MACDs are delivering a SELL signal. only a strong advance above the all time high can restore the bullish bias.  AVOID

Thailand – SET Index

For the time being, Thai equities remain in the. bear market that started in January 2018. Political uncertainties are keeping a lid on the market. However, the 1600 level is very close and should constitute a strong Buying level if the index rebounds form that level. BUY on Weakness

The Philippines – PCOMP Index

The strong reversal of last week marks the end of the correction.  BUY

Vietnam – VNI Index

Vietnam’s correction is over and this high growth market is starting anew bull phase.  BUY

India – SENSEX Index

The correction in Indian equities is over.  STRONG BUY

CURRENCIES

DXY – US Dollar Index

The US dollar has definitely an upward bias but the massive long positions prevents it form making significant headways. Last week’s failure to break above 97.5 in a lasting way calls for a continuation of the sideways consolidation in what is otherwise an established uptrend. Only a break below 95 would negate the positive bias.  
NEUTRAL – WAIT FOR A BREAK EITHER ABOVE 97.5 or BELOW 95

CNY – Chinese Yuan

The Chinese Yuan is on hold within a clearly established uptrend ( downtrend). the fate of the Chinese currency will depend on the resolution of the Trade War. A successful conclusion will send it higher, a negative outcome will send it re-test the 6.98 level.  STAY LONG

EUR – Euro

The EUR is hesitant as it tries to fall below 1.13 in a significant way. Short positions are preventing any significant advances. The bias is NEGATIVE and only a break of the 1.1370 – 1.1380 would lead to a phase of US Dollar weakness.

JPY – Japanese Yen

Expect a sharp move in the JPY soon. Either the pair breaks above 112 and the U Dollar keeps on appreciating or the Japanese currency closes below 111.50 and a phase of appreciation of the JPY is on the cards. 

GBP – British Pound

Theresa May’s vows hav no impact on Sterling which appreciated significantly last week as she was defeated in Parliament. British Lawmakers do not want a NO-DEAL Brexit but they still do not agree to the terms of the divorce negotiated by Theresa MAY. Can Europe provide some solace in the form of more concessions ? The feeling in Europe is that Britain wants its cake and eat it too. Regardless, the bias on the currency is clearly POSITIVE FOR STERLING

CAD – Canadian Dollar

The Canadian Dollar is on a well-established weakening path and for as long and it does not breach the downtrend in place since 2017, there are NO REASONS TO GO LONG THE LOONIE

AUD – Australian Dollar

The bear trend in place since 2018 may be coming to and end and a sharp move could happen soon in the AUD. The currency is trading on an important long term support and is giving signs that it wants to break out to the upside.  BUY with TIGHT STOP LOSSES

TRY – Turkish Lira

The Turkish Lira is on a awakening path as the Central Bank tries to lower interest rates. The MACDs are delivering a new sell signal.  AVOID

RUB – Russian Ruble

The Ruble broke its downtrend in January and again last week, trading below the ST moving average for the first time since the summer crisis. BUY

COMMODITIES

CL1 – Crude Oil

Oil remains on an uptrend and last week’s advance on the back on the upcoming OPEC meeting could take it towards 63. Nothing has changed on the fundamentals and the current global economic weakness I bearish for oil. However, Oil prices are manipulated and there are no indications yet that time has come to short again.  HOLD

XAU – GOLD

The long term picture for Gold remains highly constructive – Saucer cup – and we expect a significant rally to unfold in. the second part of the year. In the short term, it is not yet clear if the correction has ended and we would wait for slightly Lower levels to re-build long positions . 
BUY ON WEAKNESS

XAG – Silver

There again the long term picture for Silver is positive but it is yet too early to call the end of the short term correction.  BUY ON WEAKNESS

HG1 – Copper

Copper is consolidating after the strong advance of 2019 but the downside is limited.  HOLD

XPT – Platinum

Platinum is bound to have a significant move up soon.  STRONG BUY

XPD – Palladium

Palladium is highly overextended, heavily owned, and the trebling of its price since 2015 makes it industrially less palatable. 

Roughly 75% of palladium demand is from the autocatalyst sector. Unlike diesel cars that use platinum, petrol fueled cars use palladium as a catalyst to reduce noxious vehicle emissions. Tighter vehicle emission standards has fueled demand for palladium but it is more the speculative market that has embraced the idea than the actual final demand.

Palladium is more exposed to the Chinese and US markets where diesel hardly features in the passenger vehicle segment. Chinese demand is particularly important in that almost one-third of net palladium demand (accounting for recycling) comes from the Asian economy.

However, substitution by Platinum and the development of Electric vehicles will reduce demand for Palladium in the future.

SELL SHORT

C 1 – CORN

Last week’s strong reversal points to the beginning of a bull phase, which, if the 425 level is broken, could take Corn prices much higher considering the multi-year consolidation in place. ACCUMULATE

KC1 – Coffee

Coffee is a strong BUY. Prices are at decades low while consumption is increasing markedly, particularly in China and the market is massively SHORT though the future contracts.  
STRONG BUY

S 1 – Soybeans

Again, Last week’s reversal points to stronger prices ahead. The long term picture for Soybeans is constructive and the resolution of the Trade War should have a positive impact on SyBean Prices . ACCUMULATE

SB1 – Sugar

Sugar is building a strong base for a bull market ahead. last week’s rebound on the Moving average is positive. ACCUMULATE

LB 1 – Lumber

Lumber has closed the gap and is now consolidating.  AVOID