Five Charts to Rule Them All

Another Monday, another "Five Charts to Rule Them All" article. For those unfamiliar, this series is the result of our office decamping to a rather nice local cafe, our ordering cappuccino’s, lattes, etc.. and letting the caffeine do its thing whilst we discuss the markets. The only thing we are allowed to bring is our iPhones and maybe one or two charts. We are after qualitative analysis, rather than quantitative; what is our feel for the markets?

Firstly, this week we tried the Brioche & yes, it was very, very good. Almost as good as Nunu's.

Now, onto the markets. Consensus around the table is that we have seen, from a trader's point of view, some very important events for commodities, equities, and currencies. I realise that we may have lost a few readers by continually harping on about commodities as the market simply moved sideways, but we are here to make money, and now money we shall make.

Key Commodity breakout levels have been breached, in particular crude oil moving above $75, and we suspect, onwards towards the $100 level by year's end. Review the performance of the commodity currencies (Aussie, Kiwi, Loonie, Norwegian Kroner and Brazilian Real) against USD and JPY. Initial signs of weakness of in U.S. Treasuries also contribute to the thought process. Still could be wrong.

Equity markets received a boost last week with earnings surprises. This suggests that analysts are being conservative in their estimations (fair enough, the majority came up rather short not more than 12 months ago). To a trader, this bearish viewpoint equates with a cheap stock market. On balance, we would expect similar results from the companies still to report (the vast majority) and another corresponding rise in equity markets. This is short-term trading, not referring to p/e, p/b, or other fundamentals, but pure speculation based upon market sentiment. We are after profit, not long-term value here.

Correspondingly we are also expecting Tuesdays PPI to be greeted by more suprised analysts, taking into account the ISM and Empire surveys and further rising commodity prices.

Prediction for the week: commodity and commodity currencies end the week higher, pushing U.S Treasuries lower. Actually that is our prediction for the rest of the year; this pattern will repeat itself. The trends remain strong and the bullish wheels remain in motion.

The Value Line is one of our favourite measures of equity market sentiment along with average stock prices. Most people would call this a bullish chart (higher highs and higher lows).

Investment grade bonds are also continuing this trend. We expect to see the odd weakness here and there; these are just the normal trading pattern. Should this weakness continue, we will re-appraise our outlook.

The behaviour of the Goldman Sachs commodity ETF is self-explanatory. The sideways momentum looks finally to have been breached by a move to the upside.

We expect more positive suprises in the upcoming economic releases concerning real estate. Time for short-term sentiment traders to do their thing. Long-term we think there is still excellent value in this sector.



USD is continuing its trend in a very consistent manner. A cynic may suspect that this is a deliberate action, still no panic selling apparently. Each day this continues it gets harder and harder to believe public utterances of the US Treasury and the Fed. Our AUDUSD, CADUSD, & NZDUSD positions will remain open for quite a while it seems (may we also recommend AUDJPY).

This is kind of trading environment that we like; strong trends in place.

Three fingers of Talisker tonight!

Disclosure: Long VTI GSG IYR AGG TBT UDN

Comments

[phdinsuntan...:]

hold your sword Macleod, anything that we all does not know? I pay your latte if oil get 30 in winter times again. Keep your head.

Oct 19 09:01 AM