Nic Lenoir's Global Macro Update
From Nic Lenoir of ICAP
The $1Tr USD question today is whether this is it for equities and we are going to move aggressively lower. I am just about as bearish as it gets medium term and long term. However, short term it seems to me that it is not obvious we are going to move lower just yet. I was early to recommend taking profit around 1,070 the other day on the tactical shorts re-opened at 1,095 (we still recommended to be core short since 1,126), I am sorry as I misjudged how long this move could run.
Still looking at the Nasdaq future we see that we have reached the intermediate support highlighted previously (see daily chart) around 1,768, and similarly we have tested the 1,040/1,050 support zone for the S&P future which has been a key support as well. Then looking at the Russell we see that we have tested and so far rejected the neckline of the H&S. I am absolutely convinced we will break through those levels but not until after we first bounce to shake shorts.
In terms of Elliott Wave counts there are two alternate scenarios but I feel that most likely we are finishing the initial impulse since 1,126 and are going to see a corrective wave 2) which should give us the opportunity to sell again between 1,085 and 1,100. The wave count for EURUSD seem to confirm this.
The Nikkei has broken during US hours for the future the key support around 9,000, and the USDJPY has made new lows below 84, but already there are talks of an emergency meeting of the BoJ tonight. I may have been early with my recommendation to buy USDJPY between 85 and 85.20 but so far the 83.50 stop on a daily close holds... We clearly need a bit of help from the BoJ because if the Nikkei closes below 9,000 tonight or worse new lows then the consequences could be nasty for risk assets in general as the JPY will catch a bid like rarely. After 20 years of consistently bending over, let's see if Japanese central bankers will disappoint. They have little choice as they know Mr. Bernanke will not hesitate and USDJPY trades with a 7 handle Japanese exports are pretty much toast...
The thing that is making me doubt this bounce is no so much that the BoJ does not show up but rather the price action of AUDUSD which has failed twice at the 61.8% retracement recently and could be entering iii) of 3). If that's the case then there will be no bounce, so clearly hang on to your core shorts. The only concerning point is the fact which was pointed out by a friend that the put/call ratio is at its lowest since April... That means there are a lot of people who are not hedged out there and if we start probing 1,000 or lower in S&P and trigger the H&S in the Nasdaq we will get liquidation in full force. I think it is definitely coming, but not just yet...
Below a speech to practice for central bankers around the world:
Good luck trading,