Tuesday Technicals – 1 November 2016

Tuesday Technicals – 1 November 2016

Here’s the regular 5 macro technical charts (going as far as individual commodities, currencies, bonds, and sectors, as well as the rest of the major indexes and benchmarks).  No comments on anything except the technical/price developments (albeit we will typically cover the broader case in the Weekly Macro Themes where the technical and fundamental set up produce a compelling investment idea).  Even if you’re not technical analysis minded it’s a useful way to keep on top of trends in some of the main financial markets and as a prompt for further investigation…

1. Japanese Stocks – Breakout

-Seeing a convincing looking breakout through the critical $44 level, as flagged in a previous report.

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-Comes following a golden cross i.e. 50 day moving average crossing above the 200 day moving average, which is a key longer term trend indicator.

-The caveat is that so far the breakout is on low volume, but solid RSI momentum. Japanese stocks have a habit of making strong and explosive runs following breakouts, so it’s one for the radar.

Overall technical view: Bullish.

2. Euro Stoxx 50 – “No man’s land”

-Similarly, European equities recently also put in a golden cross.

-But the Euro Stoxx index is yet to break through resistance, and remains in the sort of “no man’s land” zone of resistance around 3050 to 3100 that acted as a ceiling in 2010 and 2011, and a floor prior to the 2015 QE blow off top, and now is so far serving as resistance.

-RSI momentum is steadily rising, suggesting an upside bias is warranted.

Overall technical view: Bullish bias; a convincing break through the zone of resistance will need to be seen.

3. Financials – A key juncture

-Financials continue to trend up after the large head and shoulders bottom that completed earlier this year, with a series of failed downside breaks of the 50 day moving average.

-Relative performance (XLF vs SPY) is solid and breaking out.

-(but) the $20 mark will be the key test; it failed that test in the middle of last year, so a break of $20 will be a trigger to get more bullish as the next up phase begins.

Overall technical view: Bullish, but awaiting a break of overhead resistance.

4. Base Metals – Break away gap

-Base metals appear to have put in a break away gap; breaking out of the trading range.

-This follows a failed downside break of the 50 day moving average and comes on solid momentum.

-Base metals have also begun out performing their peers (DBB vs DBC), which historically has been a good leading indicator of decent future absolute performance.

Overall technical view: Bullish; go with the break.

5. Bonds – Oversold?

-While the fundamentals say bonds could selloff further, the technicals are starting to light up oversold e.g. the Topdown Charts measure of global sovereign bond market breadth.

-At the same time, the Sentix survey of short term sentiment on bunds is at extreme pessimism levels.

-The chart of US treasuries ETF, TLT, is likewise showing oversold conditions on the RSI and could bounce short term despite the bearish bias now warranted by the downside break of the 200 day moving average.

Overall technical view: Short-term oversold, could bounce, but retain bearish bias.

Thanks to Investing.com and StockCharts.com for charts.


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Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.
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