UBS Technical View on Markets – 21/03/17

 

US markets – Break of SP500 2350  targets 2280 -2300 / Worst case 2240  // Sharp move but short in time 1 or 2 weeks.

Oils stocks basing and turning bullish.

Buy US Financials after pullback.

US yields will pull back short term  : Short term Top around 2.60% 10y in place // See 3% in H2 2017 .

Major top in USD in place / UBS sees DXY at 92 in 2018 from 100 now.

Bearish USD so bullish Commodities, Gold, EM, Oil .

Big move in Gold within 12 months minimun target 1700 USd after USD 1375 break.

European, stocks : Buy Dax on pullback at around 11500 and Eurostoxx50 3200 as  max retracement so buying opportunity in  3200 -3300 range.

 

 

 

 

Buy Signal on Gazprom – ADR quoted in London USD 4.43 USD // NatGas Seasonality

 

The Chart here below dated Feb 8th shows NatGas seasonality over the year since 2005 : In average,  the commodity starts the year on a weak note until February where it picks up quite strongly into June/July. Price tends to stabilize during Summer and thereafter decline into winter /end of year.

             Source : The Bespoke IG

 

In 2017 weakness has persisted until Mid to end February and Natgas has started its up move since then as one can see on below chart (Black line / Left scale) .

Chart here below points out correlation (*) between Nat Gas continuous Contract (left scale) and Gazprom (right scale )  : Nat Gas has started the move mid February as it did in average in last 12 years and Gazprom just (yesterday) follows up & showed (yesterday) a  buy signal (MACD buy signal bootom of chart) . Based on past action one can expect a 10 to 15% move to around 5 USD.

(*) Not that obvious as Ruble volatility has perturbated correlation  in last 3 years via its effect on Gazprom stock priced in USD.

 

 

 

 

 

Tactical Pf – Take 15% + profit on EWW – Mexico tracker // Buy (CDE) Coeur Mining

 

Ishares Mexico : Bought at 42.88 USD , I take profit at current 49.52 USD price  . The profit comes nearly exclusively from currency move MXN versus USD . Mexican peso is overbought and  neeeds to breath for a while and seems to have stopped its progression yesterday at around 19 versus USD .

Coeur Mining (CDE) : – Buy at current 8.12 USD – exposure to Silver and Gold via this highly leveraged/volatile Canadian mine. Trend following trade – See below chart .

 

 

 

Oil at near term bottom … Buy USO – Oil tracker

 

“The OPEC cuts are real and are cleaning up the market,” Citigroup analysts including Seth Kleinman wrote in a report earlier this week.

WSJ today :

https://www.wsj.com/articles/why-oil-demand-may-be-higher-than-expected-1489730400

Bloomberg  :

https://www.bloomberg.com/news/videos/2017-03-16/saudi-energy-min-says-oil-supply-cuts-may-be-extended-video

Bloomberg  :   “Goldman, Morgan Stanley, Bank of America and Citi stay bullish”

https://www.bloomberg.com/news/articles/2017-03-16/wall-street-keeps-faith-with-oil-recovery-even-as-prices-buckle

 

Tech : Oil price found support in 46.50 -47 area (Blue support) on strong down volumes (Yellow ellipse) .

Tactical / Virt pf : Buy of 1 Unit USO Limit 10.37 USd // Stop on WTI firm closing below 46.50 USD 

 

 

Dr Doom , Marc Faber : US stocks are expensive – Chinese’s are cheap

 

  1. SP500 up 13% since election based on stimulus measures to be implemented by Trump administration but investors are to bullish as Trump will faces obstacles on implementation of these measures ( High Debt to GDP ratio , Congress , ..).
  2. US large & Mid cap stocks are trading at 18 x forward earnings versus 12 x for MSCI China .
  3. Global investors are Underweight Chinese stocks .
  4. Chinese stocks should continue to perform well based on continuing economic and earnings growth.

 

  • Barron’s Asia  switch suggestions of  Chinese alternatives to some US blue chips :

 

Sell Exxon (USD 81.03) Buy Petrochina (HKD 5.76)

Sell Verizon (USD 49,16) Buy China Mobile (HKD 84.53)

Sell JP Morgan ( USD 91.21) Buy China Construction Bank (HKD 6.07)

Sell Apple ( USD 139) Buy Tencent  (HKD 209.70)

Sell Nike (USD 56.51) Buy Anta Sports ( HKD 24.15)

 

Rationale and details here below :

http://www.barrons.com/articles/go-long-china-short-us-5-smart-stock-trades-1488855787?mod=BOL_hp_highlight_4

 

 

 

Pressure is mounting on US stocks …

 

 

Barron’s : March 7th , 2017

 

SP500 shows reversal signal at yesterday’s closing 

Second such MACD reversal signal since US election , the first one (1st blue ellipse ) lead to market consolidation in the 2230-2280 range without major correction. I would set initial targets in the 50d MA 2280-2300 previous resistance zone . A move above recent 2400 top would negate current bearish sdignal (less likely scenario) .

 

 

 

Virt Portfolio :

Today’s action : Take profit on tactical positions on Health care tracker (XLV) (+/-12% profit in 3 months – chart shows triple top forming  )  , ishares Nasdaq Biotech (IBB) (+/- 11% profit in 3 months ) and on Japan ETF ( +/- 15% profit in 4 moths – Nikkei strong resistance around 20000 level ) and so revert in a neutral positionning in the said sector/country allocations.

Virtual Portfolio : On the hedge side again …

 

I Buy this morning a position of 2% (0,4 units) in the Nasdaq 100 CITI Knock OutPut certificate – Knock out level at 5549 – Open End – Current leverage of 25%+ – ISIN DE000CY1D3F9 – @ 1,97 EUR .  Stop Loss on this position on Nasdaq100 closing above recent top i.e. above 5400.

Technically and as already mentionned a few days ago, US markets are on some criteria at extreme levels : sentiment indicators , very low VIX level equivalent to investors complacency. Additional signs of reversals are adding up : On Nasdaq 100, MACD daily has turned down , RSI hitted all time highs a few days ago an reversing. ADX indicator is above DI+ & DI- which  testifies of a overheated market.

Snap IPO yesterday is another sign of market overheating and of investor sentiment : Company valued at USD 28B $ after first day of quotation. Zero profit since creation 6 years ago . None expected before years. Tech is a quickly evolving markets and competitors will not wait to propose same kind of app and probably bring other ideas that could kill such – for time being- no profit business.  Following Bloomberg, Snap went public at 21 times its 2017 Ads sales i.e. twice as expensive as Facebook and 4X compared to Twitter . Snap is likely NOT Facebook or Google . These latter are exceptions . Snap’ s current valuation is clearly driven by investor’s greed which translates the current state of psychology reigning in US markets .

In this environment the aim is to put a safety net below nice profits gathered last year and in 2017 so far .I nevertheless do not want to commit to much on the hedge as we have seen false signals on 2 occasions already in last 3 months so i put a SL on the trade so the risk is limited to around 0,50% of portfolio in value.