I’ve posted the links and the MacroBusiness morning over at MacroBusiness today and I wanted to highlight a few things. Firstly, after a brief hiatus in Asian trade yesterday the selling returned with a vengeance overnight in equity markets as the pending Euro implosion gather steam. Indeed UK Prime Minister David Cameron ratcheted up the rhetoric and the pressure on his fellow leaders but as Fitch downgraded Greece, Greeks pull deposits from their banks and the discussion of a Greek Exit (Grexit is the new lexicon) it seems only a matter of time before Greece leaves the Euro.
As readers know I got on and off this years rally and have been preaching capital preservation and caution since March. And although at times it has been unfashionable to be cautious this approach has been borne out by the price action that has occurred. Check out this chart above from Bespoke Investments. It shows just how bad things have been financially since the highs earlier this year. Also, since the Greek election the performance of markets has been nothing short of terrible and unless or until there is a sustainable resolution markets will remain under pressure. But a sustainable resolution is becoming more unlikely as this mess drags on – at least until we see a possible reversal of the electoral fortunes of the majors parties in a month. So it’s not too panicky to say that with big technical breaks in many markets things could still get dire for equities and investor sentiment.
So I want to turn my attention to the S&P 500′s technical set up and the fact that I remain committed to the view that this current market sell off is not just about Greece and Europe, it is about a rerating of growth and in particular of growth in China and the BRIC’s more broadly.
The chart is of the S&P 500 daily over the year and the technicians out there can see the clear double top and some suggest that the red line I have drawn is a head and shoulder pattern – Notre Dame style. Yesterday I said the zone it targeted was 1277-1300 and last night’s fall of 20 points and close of 1304 is almost there. Personally I reckon it looks likely to head to 1200 at some point.
This has big implications for other risk assets as does the outlook for the USD. The US Dollar (in USD index terms) is still trying and so far failing to break the highs of earlier this year but when it does it is likely to push substantially higher. My target on a break of the high would be 83.92 and then 85.24 as you can see in the Fibonacci projections in the chart below.
Like the USD the euro pushed lower but didn’t push on with it and it too remains very close to my target of 1.2660ish to have reasonably satisfied it in broad terms so there could be a consolidation period ahead. Once the low breaks though, assuming it does, the euro should have a sharp decline.
The Australian dollar has taken a dip back under 0.9900 this morning on the news of Spanish banks are being downgraded by Moody’s and it too is consolidating recent downside momentum. But as you can see in the chart below it too is on very important support. It seems to me that if the Aussie Dollar closes the week below 0.9860 then we are in for another 200 point (2 cent) decline fairly quickly. As I say on Europe without a circuit breaker it seems only a matter of time before the Aussie dollar heads lower again.
Longer term you can see the importance of the 0.9430 region which was last years low – this will be a very important support zone if the Aussie gets down there.
Good Luck – Your, only taking my tin hat off to wipe my brow analyst.
Have a great day
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