Is this a start of something big?

a small note before I go home. There are multiple daily bearish reversal formations in most of the European equity indices. Does this confirm a top? well, you know where your stop loss is... Monday will be a real test for Europe. As I said Ireland was not something new, watch Portugal instead. 10y yield is at 6.10%

Have a good weekend.

If only everything looked ok

The 1 million dollar question today is whether equity markets will break higher out of recent ranges. While trends are intact, there is one potential threat in the short term that can derail the rally. and the name of it "Poortugal"

I think there were comments made today that bank of Portugal was effectively shut off from long term financing sources. 10 year bond yield is rising above 6 as a result. Time to get defensive? Not sure if it is the case I spoke earlier that market decided to tests other banks balance sheet by actually brining another country on the verge of default. Here is a Reuters graph for your info:

 

Well, good news is that markets other then credit and financial equities. Amazingly, I do not see any news covering Portugal on the front page of Bloomberg/Reuters/CNBC... Ireland is not new, but Portugal is... 

Resilience in equities and commodities can also be attributed to the weekend effect and that everyone is heavily long these assets... This week's Euro move also cleared lots of shorts in the market. So there is not enough selling power. I start to believe that Portugal might actually be a catalyst for new crisis... 

It is not BRIC, but rather a smal "b", small "r", big "i" and no "c"

There is consensus that BRIC countries offer if not an absolute but definitely relative potential for growth compared to developed economies. As title of this post suggests I think we need to change the name to something like "brI". Let me explain why.

Obviously BRIC stands for Brazil, Russia, India and China. It has been the case that emerging economies weathered financial crisis and the recession reasonably well. But recent month suggest that BRICs no longer lead the pack in the recovery. Forget economic data and focus on something more simple - respective equity indices.

Brazil and Russia did not put any remarkable performance ever since. Focusing simply on charts I have to say these markets are no different to the US and Europe. these markets do not offer diversification as chart patterns are similar to the developed markets. Brazil's Bovespa:

Russia's RTS:

 

Obviously Indian Nifty is the start performer and deservices the big "I" in the name:

And China, despite being in the news more often the others (probably due to the size of the economy) does not deserve to be in the pack whatsoever. Recent failure to go through 2700 level opens the lows as the first target:

Can't argue about the strength of the Chinese economy, but I cannot be positive about their stock index either. So please stop using the word "BRIC"... call it "brI" from now on or don't mention these countries as a group at all!

Respect the lines. Continuation

some weeks ago I speculated on possible head and shoulders formation in Shanghai composite. The break above 2700 would have opened 15% potential for this index. This assumption (that formation is to materialise) was also a part of my hypotheses on higher commodities prices. Well I think I got it wrong (not higher commodities, but h&s formation). In turn the price got squeezed under rising support line, which indicates at least further stabilisation if not further losses:

So why Chinese growth does not translate into higher equity prices? Still do not know. Chinese equities have rarely been the driver of global markets, but if the importance of the US is fading (see yesterday's post) who is going to lead the pack?

There are more questions  then answers in this post. I will be happy to hear some ideas on this.

Do not underestimate weak dollar PART1

This title of this post is taken from my post written roughly two weeks ago. What has started as some stability in dollar ended up with the major rally in equities and commodities. thus do not underestimate weak dollar.

I was quiet for the last couple of days for one simple reason, there was nothing to write about and there was nothing to change my view since last two weeks ago, which was weak dollar, stronger commodities and equities. it is time to revisit this statement for two reasons: I start loosing faith in risk on risk off trade and we're approaching some key levels...

Well, intra-day correlations still hold and are quite high. My problem is the following. I never looked at another safe heaven asset which is bonds.  The relationship of bonds with other risk assets is pretty much straight forward under "normal" risk conditions, bond prices have negative correlation with equities and positive correlation with dollar. during risk off trade everyone rush from equities into safe heaven bonds in the US forcing prices to rise and yields to fall. And today something strange is happening as dollar falls, equities rally and so do bonds! now one day of trading does not make a new trend but feels like something is going on. After asking around for opinions I tend to agree with the following... There is currently rebalancing taking place as big players are running away from the US and rush into emerging markets. you can see which market by strength of respective currencies vs dollar. Feels like people are throwing in a towel regarding the US. So while on top this looks like a regular risk on trade, digging further down makes me nervous. Again, the trend for risk assets has not changed for the moment, but I would carefully look at investors appetite for US bonds and especially at treasury auctions. There is may be another crisis coming, which US debt... time will tell...

Charts still suggest that bounce from end of August lows remains intact however we equities are approaching ranges high. it is 1177 level to watch for S&P for potential top, but I would guess that given the strength of commodities complex and weakness in USD we will overshoot this target, if conditions stay normal:

Dollar weakness is off particular significance as we broke through 200d moving average, so further losses in the short term are likely:

Again, I just hope that recent dollar weakness is coming in from risk on trade rather then something bigger. Oil remains strong and copper is within recent ranges -  nothing new, so I will not put their charts .

I gave up some time ago on any upside potential for NYMEX gas. Revisiting the charts still does not show any bullish signs and recent rally off $3.6 looks to be corrective, but bollinger bands offer at least some stability:

Out of time... will try to look more into debt markets this week...