Ignoring the collapse in auto stocks (GM down most since 2015), the crash in housing data (as David Rosenberg notes, in the past 3 mos.: starts -39% SAAR, permits -23%, new home sales -22% & resales -15%), and the chaos of currencies and trade talk… and given that the major US equity indices are higher (once again ignore the ‘most concentrated strength ever’) must mean “everything is awesome”, right?
Wrong. As former fund manager and FX trader Richard Breslow exclaims today, we are right back in that frustrating mode of traders really not being able to make up their minds… Although you wouldn’t know it talking to them.
Via Bloomberg,
We keep serially rotating back and forth between bullish and bearish. Doesn’t seem to matter the asset class. Everyone is doing it. It’s time to accept that, at the moment, all trading is tactical and opportunistic, not strategic. And we should act accordingly. Saying that one is structurally any which way around is overstating the case. Just wait a few days or weeks and that’s as likely as not to change.
Why does this matter, aside from acknowledging the fact that if there is such a thing, the Global Confusion Index would be one of the few things where the trend higher is unambiguous on the charts?
Because being stubborn is a liability rather than a strength. That isn’t always the case at all. Gutting it out is often something to be admired. For now, being open-minded is at a premium. And we all know that is globally in short supply.
Extrapolation is folly. The news cycle is just too short. You can certainly do a trade based on the current market reaction to what a central bank may or may not do a year or more from now but is no basis for ossifying a world view. And directional changes should be traded as corrections, not reversals. Even if they actually represent long-term changes in direction, let them prove it rather than declare it for them in advance.
So with all of the bold forecasts out there, what do the charts really say? That the markets are a mess and ambiguity is rife. Doesn’t that seem entirely appropriate?
China has eased. The Shanghai Composite is back from the dead. Go out and buy emerging markets, equities, commodities, the Australian dollar. All good opportunities, especially because, for the most part, they have had really nice moves in the opposite direction. Just don’t look at a chart if you are declaring victory and rewriting your year-end forecasts.
The world may have changed but these latest moves aren’t impulsive. And that matters. The retracements have been great money-making opportunities, but haven’t, at least yet, broken any significant technical levels. Stay open-minded.
For this crowd, two of the obvious assets to look at are currencies and equities. Sentiment for the dollar has flipped negative and stocks are deemed bullet-proof. There is nothing in the charts to suggest that the dollar has done anything more than come off recent highs. Both DXY and Bloomberg dollar indices have seen a price within today’s range multiple times over the last week and month. If it is going to crash, no one has told anyone but the CFTC reported new longs that got burned last Friday.
The U.S. stock market is trading well. What the S&P 500 does at 2825 will be an important pivot. That’s just above yesterday’s close, which makes it interesting. It didn’t trade particularly well when it tested the level, but held on nicely.
But it isn’t just stating the obvious to caution that assuming new all-time highs are guaranteed requires overcoming resistance right here. I just don’t see it getting a lot of long-term help from its peers overseas. Unless of course the weak dollar side of the story is wrong.
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