Friday Chart Book
March it is. February was another stellar month for risk assets, while bonds saw some pressure after somewhat hotter inflation numbers. Any setback in risk assets was swiftly bought, confirming that we are still in a very strong market structure dynamic regarding equities. Learn more by reading my post on technical analysis below.
As the ever-thought-provoking
points out: Macro is as much about trying to picture a likely path forward as it is about observing the present. The mind drifts, and as such, it is important to rigorously study what is happening before connecting potentially unfounded dots into the future. That is why my models are geared not only to reflect likely momentum or a reversal but also to reflect the present sentiment. Different people have different ways of assessing sentiment. Some look at price action; others look at stories of exuberance or despair; some only look at volatility surfaces.
I like the approach of looking at market behaviour first but also talking to people in markets. I call it “Mosaic Theory”, whereby I chat with my network of people, all of whom have a different approach or vantage point when looking at markets. I trust them. The assessment I get from them is that contrary to what you see in markets, which seemingly give you “easy” beta returns, “alfa” is very hard to come by. They pretty much all lamented that things have gone a bit too crazy too fast. These are no “gurus” who started trading or investing two years ago — all seasoned investors. My alert settings pop up when I hear things like that. Timing, as usual, is unknown as to when things could change. We can all dance as long as the music is still playing, but it’s important to keep an eye out for further signs that things aren’t as rosy as markets want to make us believe. As such, I will dedicate a few upcoming articles to what might derail the current path.
Maybe such an event could come by the well-telegraphed removal of negative interest rate policies in Japan. BoJ board member Takata says in a speech this week that the inflation target is finally coming into sight and that the bank will need to consider exiting from current monetary policy conditions. A consensus on tightening has now started to build, raising market confidence and opening up the risk of a March move. Reports of major firms agreeing to 5%+ wage increases continue to make the headlines. The JPY is the major funding currency for carry and risk-on trades. A small shift to zero could change dynamics and reveal the extent of leverage build-up in the system. That’s one of the spaces I am watching closely.
Meanwhile, core PCE registered a 0.42% MoM increase, which came broadly in line with expectations. The key here is that several Fed officials have emphasized a six-month annualized core PCE running at 2%, but that measure has now accelerated to 2.5% and will likely continue to move in the wrong direction. “Supercore” registered a strong 0.60% MoM, and the six-month annualized is now running at an elevated 3.4%. The other obvious party pooper would be continued inflationary pressure keeping the Fed from its path of lowering rates. We first started with March, then May, while we are currently not far from pricing in first rate cuts in the second half of this year.
Let’s now turn our attention to the chart book. It now looks more like a chart bible, containing more than 250 charts across Equities, Rates, Commodities, Crypto, FX and single stocks. I have added a new set of US single-name stocks and international stocks to the mix. I have also expanded the FX universe to include minor FX crosses and added a selection of peripheral bond markets in the rates section.
The goal here is to give you the most comprehensive overview across a variety of asset classes out there. Every week, you will have a good idea of where things stand and where we are likely headed, with plenty of potential trading ideas being generated. I am doing it rigorously in my process, so I think it will be more than useful to my subscribers, too.
Many subscribers already have access to my scripts on TradingView. This gives you unlimited flexibility to use the models on any security of your liking. For those interested, please contact me if you would like access. I am still processing requests, which might take longer as I have to do it manually. I will respond to every one of you. Also, I will close access to the scripts in due course, with only paying subscribers being allowed access.
I have altered the way I present the upcoming wave of charts. I will not comment on every single set-up. I think it's more useful for me to highlight the ones that I think are most interesting.
By now, most of you will be very familiar with the models and their signals. If not, please study the guide I have published. I am also planning to provide some video tutorials to help further.
Let’s go!