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.
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.
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.
The SP500 closed yesterday at 2271 i.e. 13% higher since the day after election (SP500 futures nearly touched 2000). No clear signs of reversal are noticeable at this time ; the main trend is still up but main US indices (and some Europeans ones) are clearly overbought which is not sufficient to guarantee an immediate reversal. Nevertheless a partial hedge of the Equities part of the portfolio as a precautionary measure is the right thing to do at this stage, in my opinion. Fed meetings days are historically high volatility days !
Action : Buy 0,2 unit (1% of portfolio) of the UBS Put Certificate on SP500 with Knock out level at 2354 i.e. certificate become worthless should SP500 goes beyond 2354. The leverage level on this certificate is currently at 26 so by investing 1% we “hedge” 26% of portfolio , around 1/2 of equities in portfolio (out of commodities linked positions).
Action : Take profit limit on the 2X daily Dax tracker at EUR 259 (Current EUR 254). The take profit level matches with Dax reaching our 11400 first target level.
We had a limit on the iShares Nasdaq Biotech ETF (IBB) since Nov 9th post – “We are not going to chase the stock at such level but given the expected volatility to come we nevertheless adapt the limit to 265,50 . Why 265,50? The reason is that a gap will form at today’s opening compared to yesterday sclosing at 265 . Gaps are filled in around 80% of cases.”
Gap closed this week (See below chart) and order executed at USD 265,50 during Dec 7th session.
In the last 2 weeks booming global markets , we are losing some advance compared to our benchmark given our Precious metals ( Gold , Silver & GDX) “protection” positions and our 1/4 of PF cash level. Markets reaches extreme overbought situation but no clear sign yet of a reversal is to be seen. This positionning including Health care exposure – XLV + GILD – (Sector remains oversold) bought at chepa price should act as buffer when inevitable correction will come.
Virt Portfolio positions
US equities markets have closed down the last 7 days which is the longest losing streak in 5 years. This ( 7 days or more) happened 3 times in last 20 years : In 2008 when Lehman failed, in August 2011 when US debt was downgraded and in November 2011 for the EU debt crisis. This time and since last week, the markets have started to anticipate other potential nasty events for the markets which are 1/ a Trump election at the White House (Risk of short term selloff ) 2/ Risk of constitutional disputes in case of Clinton election (The risk for the markets would be more mid term but positive just after the election).
Technically, US markets (Here shown NDX100) are reaching oversold levels matching with strong bounces in the past .. in case of “normal” corrections as shown by red ellipses. During the last two 20%+ corrections oversold levels did not matter and markets corrected further .
Potential stopping points (Blue ellipse) are are at 4702 (2015 closing and current quote on NDX futures), 4694 (July 2015 top) & 4656 (Sept.2016 low).
Trump elected at the White House bears the risk of MUCH more downside, one must be clear but it should not be the preferred scenario here as Clinton is still leading in majority of polls.
ACTION : Sell 1/2 of Nasdaq Put at current price of 2,28EUR ( Nov 3rd 10:55) . We keep limit placed yesterday at 2,70EUR for the other half . Note that given the increased volatility in markets ahead of US election i might quickly reestablish the full hedge.
The technicals don’t look good.
See my recent posts and charts on SP500 and Nasdaq 100 : I fully agree !
Current levels on SP500 are at the juncture of 2 very important supports/resistances: 1/ The 2015-2016 resistance levels that prevented upside above 2130-2140 (horizontal line) 2/ The Up trendline traced from February 2016 bottoms with 3 supporting points.
The market has made lower highs since early august and is at 4 weeks low today, both facts being bearish as well.
Watch closing today and expect more damage in next days if this closing is below the 2130-2135.
Action : Buy 0,3 unit (1,50% of portfolio) in below KO certificate at 1,04 eur – Put Nasdaq 100- as a hedge / protection of portfolio. Leverage is 40 so it is a proxy to “protect” 60% (1,50% x 40) of portfolio . ONLY USE THIS INSTRUMENT AS A HEDGE .. Becomes wotrthless should NDX 100 quotes above 4975.
- Nasdaq100 made an all time new high 2 weeks ago at 4895 and never managed since then to decisively break this high and the uptrend line originated in August 2015 (purple line).
- No close since then above the 4880 level –> Strong resistance in the 4880-4890 area.
- Large 20% move since after Brexit 3 months ago without any lasting down reaction.
- Seasonality is historically bearish during first half of october.
- Bearish Divergences between RSI/Macd and price.
- If red TL is broken acceleration on the downside is likely.
When are we wrong ? A closing price avove 4895-4900 that could happen as early as today should employment numbers in US be on the lower range of expectations which would definitely kill any possibility of higher US rates for the November Fed meeting .
2015 publication but still valid …