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Risk Assets (SPY, WTI, PMs, EM, Base Metals) Find A Bottom In Early September; Liquidity Models Suggest A Sharp Rally Into Early October

Wednesday, September 7, 2016

11.45 am

The update delayed due to work pressure -- I have to make sure clients are getting the proper message from the markets:

  • The US Dollar rally has reversed. We were hoping for a final uptick, but that is the nature of markets -- you can't get everything you wish for
  • The lift-off and subseqeunt correction in oil prices earlier in the week, will now be defined by continuing weakness in the US Dollar TWI
  • EM assets on the rise again -- EM will be one of the best performers on the way up to the peak in early October
  • PM, miners and metals (NYSE:AG) will also be big beneficiaries of the weak US Dollar. The very near-term performance of this sector may be similar to what we saw in early June to 1st half of July
  • E&Ps will probably outperform crude (molecules) -- although we do not discount a sharp surge in oil futures prices if there is a political solution in Iran's stumbling block situation (only about 250,000 bpd are being kicked around -- KSA and Iran can easily split that to save face and honor for everyone)
  • The equity market correction is over. Tentative upside target: 2350. VIX will likely fall to circa 1
  • Oil refiners like to reach, even surpass high points seen in late March or late April

The charts have all been rescaled properly.

This will do for now -- still working on the push-back sector. Will finish the update before the trading day is over. Sorry . . . got to earn may pay first.


Monday, September 5, 2016

11.05 am

  • We have a lift-off in oil -- crude oil has bottoned in line with the Liquidity Models' forecast.
  • Nonetheless, we remain open to the possibility that the US Dollar TWI may have one more rally left this week. But it is now a case of looking for a USD top.

This blog post will be updated tomorrow, Tuesday, September 6. I just want to see how the market will close today.



August 30, 2016

This is the status of our Liquidity Models vs Synthetic Model vs Various Asset Prices at this time:

This is a live link. To get an updated chart, please click on the link below:


These are the latest developments, which are considerably different from our previous expectations, as explained in the previous report:

  • With the convergence among the US Dollar and most (if not all) of the risk assets that we are tracking with the Liquidity Models, it has become obvious that the dissonance of the Liquidity Models during the past few weeks has been a major contributor to the chaos. Apparently, the individual risk assets follow the various models to greater or lesser degree, and that has contributed to the divergences. We still face a huge divergence between two dominant Liquidity models, and the only way to navigate the situation is by creating syntheses of the models to obtain the "ideal" asset price path, so to speak. This is the theme of this week's report on the progress of the Liquidity Models.
  • I explained the process of creating synthesis of the Liquidity models in the most immediate, previous report so I will not repeat it here. I have created three synthetics, where the lead roles are assigned to each of the three models. We are showing two of thos models in the chart above. The third synthetic is not so relevant to the major asset classes (it is most relevant to major oil refiners), so we don't' show it in the chart shown above to prevent clutter.
  • We said that there were other sub-set conditions or developments which should happen on the way to asset convergence: (1) As the equity market falls, the PMs (gold, silver) should likewise fall along side; and have already done so last week (2) EM assets/markets should also decline, as well as High Yield index returns; EM currencies have already fallen sharply, even before the US Dollar TWI turned around (3) DM and EM equities, EM CDX, HY indices and some base metals (which track the EM CDX well) should all decline together -- and that may happen with a US Dollar reversal to the upside, or not long thereafter.
  • That has happened to some degree; some assets falling sharply as the USD firmed up. The big surprise is that not all assets fell, and if they did, the declines were not that sharp considering the change in the Fed tightening reaction function. Even the US Dollar's rally was not full of conviction. That provided the first hint of something not going according to expectations - nothing based on the data, just an old trader's gut feel. Anyway, one of the readers (chana r. ) also wanted guidance on what model to follow as guide to his trading. A week-end session with the computer provided the work that follows.
  • The new outlook based on several syntheses of the Liquidity Models: asset prices will likely make a bottom in early September, rally or build a base (depending on which synthetic you choose) during mid-September, a dip in late sept. follows, then a sharp rally into the first half of October. This sharp uptake would be followed by an equally sharp deflation of asset prices.
  • The practical implications: this could be the last big rally for the year if the models are correct. If you miss this one, it would be very difficult to end the year with significant positive portfolio P&L, especially so that the models and the synthetics (of course) show a declining market stage well into December.

This is all for now. I will post additions to this commentary over the next few days, as market action confirms or negates our initial conclusions.


US Dollar TWI and Major Currencies:

Interaction of USD Dollar TWI vs Synthetic Model vs Liquidity Models

Outlook from Aug 30, 2016: USD should firm up for few more days, then weaken sharply till mid-Sept.

This is a live chart. Get an updated chart by clicking on the link below:


EM Assets and EM Currencies vs the US Dollar:

Liquidity Models vs Synthetic Model vs MSCI-EM, Brazil Real, Chilean Peso

Outlook from 30 Aug 2016: EM assets bottom 1st week Sept, then rally till 1st week October

This is a live chart. Get an updated chart by clicking on the link below:


Gold, Silver, and Miners:

Liquidity Models vs Synthetic Model vs Gold, Silver, Miners GDX, GDX/J

Outlook from 30 Aug 2016: PMs, Miners fall till 1st week Sept, then build a sharp rally into early Oct.

This is a live chart. Get an updated chart by clicking on the link below:


Crude Oil, CVX, CLR and APC:

Liquidity Models vs Synthetic Model vs Brent Oil, CVX, CLR, APC

Outlook from 30 Aug 2016: Oil, E&Ps recover during 1st week Sept, builds a rally till early Oct.

This is a live chart. Get an updated chart by clicking on the link below:

This is a live chart. Get an updated chart by clicking on the link below:


Base Metals (Copper, Zinc, Lead):

Liquidity Models vs Synthetic Model vs Copper, Zinc, Nickel

Outlook from 30 Aug 2016: Copper bottoms in early Sept, builds base for a peak in early October

This is a live chart. Get an updated chart by clicking on the link below:




Outlook from 30 Aug 2016: VIX , SPY turn in 1st week Sept; build a rally peaking early Oct.

This is a live chart. Get an updated chart by clicking on the link below:


Large US Refiners:

Liquidity Models vs US Large Refiners plus Crack Spread 123

Outlook from 30 Aug 2016: Refiners bottoming out, and may recover from here till Late September

This is a live chart. Get an updated chart by clicking on the link below:

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.