Starting 2019

Last week we started off 2019 with a slide in equities, the S&P500 testing and selling off the 2520 resistance level. My thoughts at the time being that this was a significant resistance and we would not breakout from it proved wrong as the market ripped through on Friday. Fueled by the hope that Powell has become more willing to sit back and hold off on rate hikes, markets rallied BIG.

spx rip

SPX

SPX posted 2.33% while the NASDAQ posted 2.6% up for the day.

I have no gauge on Equities right now. I’m leaning on the short side but wont be surprised if we get a 4% up week. Its amazing how quickly sentiment shifts when prices begin to change direction. I already hear people calling an end to this bear market, usually the same people who called the bear market only just a week ago.

I like to see what the news headlines say to gauge sentiment and its not looking like a generational buying opportunity. They say in bull markets people tend to ignore the bearish news and listen to the bull headlines while in bear markets the opposite is true. I am certainly beginning to see more bearish headlines and reports coming across my desk.

The synchronized global growth story is long dead and the numbers coming out of the Euro Area and China are telling. Apple will likely be the first of many to guide down as global demand slows, business investment following.

I’m watching the dollar:

Recently the Dollar Index has been trading to the lower end of its 2 month trading range, failing to breakout past $97.70 it has been looking awfully sluggish in recent days. Possibly markets pricing in a dovish fed in 2019.

dxy tapping

DXY

Last week on Thursday the Yen has a massive rally against the Dollar with close to a 4% intra-day range. Not your normal day for any currency, let along the Yen.

usdjpy selloffff

USDJPY

CAD too:

usdcad

USDCAD

Clearly something fishy is going on in the currency markets. Looking to see just how far the Dollar has to give. A weak dollar would take some pressures of Emerging Markets and possibly allow GOLD to run through $1350.

Safety Trades:

Since Nov 9th the 10Y Treasury Yield has gone from 3.25% to under 2.7%. Massive demand for some sort of safety. All throughout 2018 we kept hearing about “the record short interest on treasuries”, well I guess all it takes is a “little” volatility for old habits to kick right in.

us10y record short

US 10Y Yield

A bounce in Yields (selling bonds) would coincide with an equities rally, neither of which would be unexpected in the slightest.

If participants are pricing in a dovish Powell in 2019, we could be in for a “recovery”. The real tell will be the Economic data we receive in the coming months. Lagging indicators lag.

 

Thanks for reading

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