Asset Markets To Rally

The previous forecast for an imminent top in risk and related assets was somewhat early, and about 1-3% away from what proved to be the tops.

I am not very happy with how risk sold-off since then, and therefore expect another rally to challenge the August 2010 peaks.

I expect substantial weakness in the Autumn, possibly beginning in early September. This will likely coincide with sub-50 ISM, revisions of Q2'10 US GDP down to 0.8-1.2% and possibly negative Q3'10 GDP in the USA.

This is a daily chart of Microsoft, which I expect to rally strongly (around 12-14%) in the next two weeks.

This is a daily chart of Bank of NY, which I also expect to rally strongly (around 12-14%) in the next two weeks, along with other Financials.

Strength In Asset Markets Likely Over Soon

The forecast made in the beginning of July, of a multi-week, 7-8% bounce in risk and related assets, has come to pass.

I believe that this strength is likely to be over soon, with a potential for sustained weakness beyond June/July lows.

Below is a daily chart of the FTSE100 index (London). For various reasons, I believe this chart to offer one of the cleanest "counts", where the most plausible outcome is sustained weakness from current levels.

Very Oversold, But Still Room To Go

On a number of metrics, the current "risk trade" is extremely oversold. Taking G20 equity indices, I believe that a multi-week, roughly 7-8% bounce is quite close. However, both internal structure of the market so far, and slightly longer-term indicators suggest that further short-term weakness is highly likely.

The number of stocks, included in the SP500 index, that are trading above their 50 day moving average is fast approaching levels not seen since the March 2009 bottom and the panic of October 2008. Previously, stocks have always bounced from similarly oversold levels.

There is still a fair bit of room before the market is terminally oversold though, as shown by the number of SP500 stocks that are trading above their 200 day moving averages, in the chart below.

Here on the daily SP500 chart, both the RSI and Stochastics are extremely oversold. The index is alos sliding along the lower Bollinger band. I expect a move lower short-term, followed by a multi-week bounce, as shown by red lines.

More downside?

So far, the larger “irregular” count I have been following is working out well.

Again, so far, we had a very neat impulse lower in the EZ banking sector. Surprisingly, Spanish and French banks have been noticeably stronger than, say, German or Skandi banks.

That notwithstanding, they have also, on hourly charts, traded beautiful little corrections (abc in lower case on the chart).

This is quite a count… if it is correct, the market will collapse in the next 3-4 sessions.

I expect a bottom to hit around mid-next week.

This is an hourly chart of the Spanish bank Santander:

Fireworks, Fireworks, Fireworks.

I am now on full alert for rapid declines in risk and related assets.

As suggested in my previous post and pointed at in the accompanying charts, risk and related assets have likely peaked from slightly higher levels from Thursday last week.

I believe that today’s (post Chinese announcement) highs might turn out to be fairly secure stop loss levels for short-risk trades.

It is likely that there will be some form of a retracement (a move higher) in the next 24 hours.

No charts today.

Fireworks Alert!

The first "Fireworks" alert, last week, was too early and wrong.

I believe we are coming up to the end of corrections higher in risk and related assets that began at the end of May. While attention has been focused on problems in Europe, where Southern Europe significantly underperformed the North due to credit strains, little has been said about dreadful performance of the world's manufacturing and industrial centres.

Below is a selection of Asian indices, all of which are very sensitive to growth in the global economy.

A very clean impulse lower in Australia, with a neat correction higher. This index has also produced the "death cross" on the daily chart (55 day moving average crossing the 200 one from above).

Also a very clean impulse lower in Hong Kong, with a neat correction higher. This index has also produced the "death cross" on the daily chart (55 day moving average crossing the 200 one from above).

Finally, another clean impulse lower, this time in Singapore, with a neat correction higher. This index has also produced the "death cross" on the daily chart (55 day moving average crossing the 200 one from above).

A good proxy for Risk - NZD/JPY is about to finish its correction higher, possibly around the coming week-end.

And finally for today, crude oil is also likely about to finish its move higher very soon.

Fireworks!

I think risk and related assets are about to get slaughtered. Get ready for something very messy.