Sunday, June 26, 2016

Brexit and Markets

Brexit is a non-event.

First of all, it is not a binding referendum. It can be rejected by UK Parliament and/or Prime Minister. Secondly, in view of the threat from Scotland to break away, England will reject such nonbinding referendums.

Regarding market reaction, the indices fell mainly because of overvaluations. Brexit was simply the proverbial straw on the camel's back.

British pound fell to 1.3200 and it is near its historic lows. There is a long term support emerging at this price. It is unlikely the pound will break this support considering that Brexit is not a significant fundamental factor. Going against the mass panic, I RECOMMEND A BUY on GBPUSD and its crosses at these levels.

If any, Euro will be the one that needs to face the axe. The UK referendum will set the trend for other nations to try their own emotional appeal to break up the union. In particular countries wanting special deal may use this threat.


Bank of Japan should stop being a paper tiger and declare unlimited open war on Yen strength. It appears that MoF and BoJ lack the intestinal fortitude to come out and weaken Yen. Verbal interventions are often precursors to further yen strength. Market doesn't like empty threats. BoJ/MoF must act quickly, and come out with blazing guns in all directions to show they are serious. Stop talking and Act, or lose credibility.

Federal Reserve will stop hiking rates this year, owing to turmoil and also because dollar continues to gain strength. This will keep markets buoyant.

Thursday, June 2, 2016

QE or negative interest rates don't work

Quantitative easing (QE) is practically a negative interest rate program. Both aim at weakening the currency's purchasing power.

Say, Switzerland has -0.75% interest rate. This means if I deposit money into a Swiss bank I pay interest to the bank each year for keeping the money there.

So, when the bank rate is negative who will keep money in the bank? Nobody. That is the goal of the central banks. Don't keep money in the bank but spend it. Ooops, that is where they get it wrong. If keeping money in the bank comes at a price, what will I do? I will keep my money in my basement. My basement becomes my bank. During negative interest rate era, 0% rate is actually positive for me, so I will keep my money. But who says I have to Spend it? It is foolish for the central banks to think I will spend it if I store it in my basement.

Thus, negative rates don't work. People use their basement as bank deposit.

Central banks want to increase liquidity/money circulation. But that cannot be achieved through negative rates. Lowering rate is intended to make borrowing easier, which is supposed to improve circulation. Sadly, that is supply side economics. Borrowing is limited by borrower's borrowing ability. With most people having poor credit worthiness, no amount of supply side money will reach the borrowers. The only way to increase circulation is to lower the credit score requirements for borrowing. This tool has not been used by the central banks. Is there anyone at all in central banks who attacks the problem from demand side?

Saturday, May 21, 2016

Strongest indications of Bear Market ahead

STRONG SELL recommendation is now issued against the US markets S&P 500, Dow Jones Industrial Average and Nasdaq composite.

The MA50 has crossed over below MA100 in S&P, which is usually considered as "death cross". Historically everytime it crossed the market reacted in that direction.

There are many other indicators that warn about impending crash of US markets.

The G7 meeting today told Japan not to dilute Yen. Given that USDJPY has a strong correlation to S&P, bearish USDJPY will also bring down S&P.

The commitment of traders index shows speculators are heavily long in Oil and Gold, which portend a reversal of commodity market too. All point out to a strong dollar push.

COT data from CFTC:

Sunday, May 15, 2016

May-June 2016 Recommendations

There is a Fed meeting ahead in June. The economic signals are mixed. I still believe the Fed won't raise rate until the quarterly consumer price index prints a red hot figure at least once.

USDCHF - hitting weekly resistance. It may pull back for a week but monthly is BULLISH.

EURUSD - Downside is limited but will follow USDCHF for one week. Then remain neutral.

EURCHF - Bullish based on the above scenario.

CL (oil) - West Texas intermediate has crossed monthly resistance. There is upside all the way to 58
unless something happens quickly (such as dollar gains strength).

Gold - there is still upside pressure, as it appears to break out of monthly resistance.

GBPUSD - the Brexit will keep it limited below 1.49, but once the crisis is over it is headed to 1.60 quickly.

All GBP crosses will follow GBPUSD, except GBPJPY.

USDJPY will suffer much longer until dollar takes a decisive turn for upside.

S&P500 - is down for 3 weeks. The monthly and weekly curves are turning downwards. It may head back to 1800, which could make dollar strong.

FTSE - has a limited upside now and then could trend down to 5800 by June owing to Brexit fears. However, not much downside beyond that, since FTSE composite is made up more of European stocks than UK stocks.

Nikkei index:  It will suffer downside along with USDJPY.

HSI index:  Hang Seng is down owing to bad real estate situation in HK, as well as china problems. But it is a highly risky index to short, since any moment China can devalue Yuan and it will push Shanghai and HSI markets.

Sensex:  Best to Short.  The UE is High in India, inflation is High. All these are paradoxical and send warning signals. Where there is smoke there is fire. India's economy could crash land much faster than China.

Sunday, April 17, 2016

April-May 2016 Recommendations

Various instruments and their trends for april-may:

USDCHF - LONG (Technical and Fundamental)
EURUSD - SHORT (Technical)
GBPUSD - LONG  (Technical)
EURGBP - SHORT (Technical)
USDJPY - neutral (Technical, against Fundamentals)
EURCHF - neutral (Technical and Fundamental)
GBPCHF - LONG (Technical and Fundamental)
GOLD - SHORT (Fundamentals)
CL (crude oil) - SHORT (Fundamentals)
SILVER - Neutral (Fundamentals)
USDCAD - LONG (fundamentals)
GBPCAD - LONG (fundamentals)

Saturday, March 26, 2016

S&P Short Covering ahead

The positioning of S&P is 80% of traders are short. This means the index could rally to 2100 rather easily, as short squeeze will force them traders to cover. This is the largest shorting of S&P in recent years. Retail to Commercial positioning is almost -5.0, that is for every one commecial long there are five retail short. Commercials tend to be right in their prediction and retail often wrong in their choice.
In the daily chart the price has crossed over all moving averages:

In the weekly chart too, the price has been supported above all moving averages:

However, the monthly charts show the upper limit might be around 2136 (100 pts from here).

Accordingly, we expect several weeks of S&P rally upside until the SSI indicator turns around with retail going long and commercial going short.

Tuesday, February 9, 2016

Gold and Markets Reversal ahead

In the daily chart Gold has failed to break through the 1200 psychological barrier. Even when the markets were bleeding yesterday it put in a Doji. Hence, I think it will be downhill for gold for a while. Also it has hit a resistance in weekly Bollinger:

Inline image 1

Inline image 2

USDCHF has hit a multilevel (daily/ weekly/ monthly) support level at 0.9710. It is poised to return with vengeance.

Put together, these suggest that equities may do well for coming weeks.