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Prior to joining The Daily Trading Report, I performed the roles of Chief Market Technician and Head Strategist for the Treasury and Proprietary Trading divisions of a major investment bank. I was also responsible for managing a global market neutral proprietary fund focusing on industrial,... More
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  • Around the Financial Markets in 8 Charts 0 comments
    Sep 8, 2009 04:27 AM | about stocks: EEM, TBT, DBC, UDN, DBV, TLT, JNK, CRB, EOD
    This is the second in our weekly series - Financial Markets in 8 charts.  We have been using this internally for a quite awhile now and want to bring it to a wider audience. We take a look at the major indices of the equity, commodity, currency and bond markets and using intermarket analysis attempt to identify long term trends and underlying themes.

    We see the multi-week highs of Silver and the Aussie dollar as demonstrations of Inflation Hedge and High-yield instruments.

    We expect this to continue for many months to come.

    Equities

    What happened in China recently? A straight line rise, then a bit of a collapse. How often have we seen that in equity markets. We think that little bubble has "popped" and now shall see a series of higher highs and higher lows in world equity markets. There has been no collapse in the high risk small caps which gives us confidence that this rally still has away to go.

    Dow Jones World Index

    Dow Jones World Small-Cap Index

    One of our recent articles, Market exuding a General Bullish Tone resulted in some incredulous comments. All we are doing is reflecting what the market is telling us.

    Fixed Income

    US long dated treasuries anyone? Who wants yields of less then half the Dow? Someone is accumulating here; whom the parties are we don't know. Our experience tells us that Junk Bonds and US Treasuries rarely travel in the same direction for long. We do think that yield seeking is well and truely alive in the bond market.

    20 Year Treasuries

    High Yield Junk Bond

    Commodities

    We have been commodity bulls for awhile now, however clearly the CRB index is not looking bullish, but nor is it bearish. The recent rises in Gold and Silver should see the CRB take a more bullish position, however other commodities are showing signs of weakness.

    CRB Index

    Dow Jones Industrial Metals

    Rising equities with commodities not quite rising in tandem, in conjunction with the Baltic shipping and rail car rates leads us to think that perhaps global equities are slightly ahead of economic activity. However we cannot see any weakness in equity prices at the moment; we can only trade the markets as they are, not what we think they should be.

    Currencies

    Oh dear.. look at the USD index. What is causing this? We think that the recent increase in money supply is the most obvious cause, but as is usually the case with financial markets, the cause end effect relationships is quite complex. DBV, the high yield currency ETF is close to breaking into a multi-week high. Again we see that investors are seeking yield rather than risk aversion.

    This appears to be very much a tradable trend & may be a factor in demand for US Treasuries.

    We use DBV as one of our leading indicators for market movements. The currency markets, being the most liquid, tend to show trends before other asset classes.

    US Dollar Index

    G10 Currency Harvest Fund

    When we wrote last weeks article, we were expecting a pull back in global equity markets of around 5%. Even we, bullish as we are, were a little suprised that there was not more downwards momentum (..it may still yet come..), however we still feel that these  market trends or themes will be with us for many months to come.

    Bullish:  equities, commodities, corporate bonds & high yield currencies.
    Bearish: US treasuries, the USD and low yield currencies.


    Disclosure: Long EEM, TBT, DBC, UDN, DBV
    Themes: Macro View, Global Markets Stocks: EEM, TBT, DBC, UDN, DBV, TLT, JNK, CRB, EOD
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  3. World Investment Themes in Eight Big Charts (1 Comment)
  4. Inflation Premiums at Multi-Week Highs Suggesting a Breakout for Commodities (1 Comment)
  5. All Things Bright and Beautiful (Emerging Markets) (1 Comment)
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