From the Punter Trenches (6 February 2018)


By Tanya Rawat

What you see it what you get or so the old adage goes. It was indeed a case of self-fulfilling prophecy wherein what majority of the market participants were seeing in the markets or talking about came true.

However, it isn’t all gloom and doom. It was a necessary correction as the markets were steaming ahead while the economic condition didn’t support the extremity of the move.

Key Takeaways: Bullish Gold, Bearish Dollar, Bullish SPX, Bearish DAX

Bullish Gold, Bearish Dollar
I still remain Bullish Gold and see it after a pause (I mentioned last week that while I remain bullish Gold either as a haven asset now or inflation hedge in the future as the latter picks up steam in the US it could retrace to $1,300/oz or $1,293/oz levels) heading to $1,375/oz or higher. If the Yen is unable to breach 108 support (a key support level) vs the Dollar (DXY), I see no more room for its strength primarily given how strong the momentum in the Nikkei is.

Overall, I still remain bearish DXY and see another 2% down move in tandem with EURUSD 2% up move to 1.28 levels. Though we might see temporary strength in the DXY.
We must keep this in mind as, if the DXY does start to strengthen we will see momentary correction in Gold as mentioned above.

Bullish SPX
The top constituents of SPX are:
Infotech, Financials, HealthCare, Consumer Discretionary, Industrials and so on. Energy is a meagerly 6% of the index. (There seems to be slowdown in momentum in Energy names in Europe and US on a weekly basis).

IT companies have their own idiosyncratic factors hitting it. APPL because of X not being able to receive calls and a switch to Intel from Qualcomm going forward for chips etc, Google with its case with Uber etc. If you look at the largest component of  Infotech and SPX, it started stumbling mid-January way before the ‘correction’.

Additionally, Financials are probably being sold off as ETFs with the large cap names are being sold off. Historically when yields do well, so do Financials given their direct relationship. Also, the correction in Financials is because of the psychological resistance of 500 set prior to the ’07 crash. If it breaches that, it will set new highs, hence this correction is minor.

Bearish DAX
It has breached the 50 week Simple Moving average of 12,647 levels and looks headed to 12000 levels and probably 11604. This was on the back of it unable to breach the 13,400 resistance for a second time in a row (last attempted in November 2017). There remain downside risks to DAX given that I view the Euro weakness as only temporary till it retraces to 1.28 levels.

Stay Calm and Carry On.

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