Weekly Technical Analysis – “Near-Term Weakness Towards Worst …
Weekly Technical Analysis – “Near-Term Weakness Towards Worst Case SP500 1730″
by
on
Jan 28, 2014
•
7:42 pm
The Swiss team have released their latest technical analysis for the major asset markets.
They are sticking to their cyclical road map and therefore forecasting a shallow correction of between 5 to 7%. They reference 1730 as the ‘worst case’ scenario.
I’m personally a little more near term bearish that this in terms of levels to target. The technical setup suggests this correction may not last so long but is likely to be fast and a little disorderly at times. Simply, the market cannot absorb the amount of hedging and liquidations required to reduce leverage that participants are likely to demand. If we do see a volatile continuation of this correction then I wouldn’t be surprised to see 1650 (-11%) sp500 be achieved though I do suggest this may reverse quite quickly on reaching this level! If participants do rush to cover their extended positions, especially if the FED “put” fails to come quickly then the Nasdaq will likely offer a good beta on this and yield approximately -13 to -15%.
The team are (by implication) fairly bearish the US$ (although i’m reading between the lines here and so could be wrong) and bullish energy, EMs and Gold and the AUD. This makes their latest report a pro cyclical recovery model with the underlying implication being an increase in inflation expectations (again my assumption).
Of course they keep an open mind and the sector comments re the banking index as a lead on index levels is an intelligent comment and shows their ability to adapt their expectations to events. (As an aside comment I was drawn to their reports prior to them winning any awards for this very reason)!
“A break of 67/66 would also break the very long-term 2011 bull trend”.
“It would be a negative indication for the overall market”.
Great comments.
And they follow this perfectly with their comments on China and the EMs.
“From a pure technical perspective we would still need to see a later Q1 rally/rebound to fail completely and take out our
deeper Q1 bottom to get the clear message that there is really something wrong in this part of the world.”
Perfect again.
The EMs are over sold and on a relative basis to DM indexs look too cheap. The obvious question is whether EM indexes are correctly priced or DM indexes are correctly priced given the state of the world economy? Either way, over time, buying either “correctly” or “under priced markets” is a good idea!
Europe price wise and technical indicator wise actually appears in better health than do many US indexes. On earnings per share metrics Europe is significantly cheaper that relative US stocks so this seems reasonable. The credit markets remain benign for now which is a tail wind for the market and one less thing to worry about. Price is constructive albeit with a near term correction in motion.
Without delay here the report and all eyes to the FED.
Cheers Rich
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