Attack the Week (ATW)
NFP Analysis / Calendar / Macro FX Update / Dashboard / Asset Allocation Update
Sunday Thoughts
While equity markets appear buoyant, I find it hard to decipher price action from what some of my signals are telegraphing. We have seen several reversal patterns across a variety of equity indices over the past week, yet no or very weak reactions ensued. For those of you who receive the daily dashboard, you will be familiar with the warnings and counts the models have been firing.
The DAX, for example, using my TradingView template (available to subscribers for an additional fee; email me if interested), has seen those reversals (yellow candles) do a decent job in projecting turns over the past few months. This time, however, there is no reaction as we have extended to new highs. While momentum is long (green markers), a normal consolidation pattern would likely see a retest of the 20 ema below.
What if no reaction follows? My reversal framework looks at probabilities, never certainties. As such, if we fail to get a consolidation over the next 2-3 trading days, the reversal window times out and the underlying positive trend reasserts itself. This would indicate the bullish setup we currently face in equities overall. I wrote in Friday’s thought piece how upside call option volumes are exploding, and the put-call skew saw a sizeable collapse last week.
Gold has seen a move after a long sideways consolidation over the past few months. We wrote a piece in late May about long-standing observations of Gold and what the arrival at the 200-day moving average tells us about forward returns.
It is interesting how Gold, once again, has anticipated a softer Dollar environment as we reflect on the past few years of stellar performance. Friday’s payroll numbers were a surprise event, and Gold benefited handsomely on the day. Payrolls fell 23,000 when the street had pencilled in a gain of 85,000. Of the roughly 75 economists Bloomberg surveyed, not one of them wrote down a job loss. Not one.
That is actually much rarer than it sounds. So I went digging. We screened 25 years’ worth of employment runs and looked for sign flips and what market reactions looked like over the coming weeks.
Across all those years, there were only six occurrences. That is it. And the just-released July number is the strangest of the lot, because of where it landed rather than what it said. More on that below the paywall. Good time to subscribe.
In addition, the usual script as we prepare for the week ahead:
Macro D’s FX trades and corresponding spreadsheet with PnL details (+1.51% last week)
Calendar for the week ahead
Dashboard Analysis
Asset Allocation Model Update
Let’s go!
