Retail Sales To Disappoint, Risk At Risk Again
Submitted by Nic Lenoir of ICAP
Early readings for tomorrow's retail sales indicate the number could disappoint. As many have pointed out already, the index of positive/negative surprises have been flashing red for the past few weeks: an indication the recovery could be losing momentum. Also, indications from retailers following black Friday were not exactly rosy. Macro economic models using available data are pointing to a possible flat number which could well rattle the market. This was confirmed by my friend Jonas Thulin, head of research for Nordea, as his forecasting arsenal points to a possibly negative number.
We also had a wide miss on Brazil's GDP to the downside this morning. Simply put, the revised number came in below the forecast of all economists interviewed by Bloomberg. I have long contended that Brazil is just another house of cards built for us by salesmen on Wall Street who have nothing to sell at home, and investors who are craving for something to bet on after last year's beating and a falsely (fraudulently?) regained sense of stability. It's even easier when what they bet on is something they know very little about other than what the salesman tells them, and that is pushed up by a pool of liquidity 100 times bigger than the actual size of the market. Maybe today's numbers will put things in perspective a little bit. Having natural resources does not justify a stock market valuation 4 times greater than at the top of the dotcom era...
In any case, with an economic picture which in our opinion will disappoint in Q1, and possibly freak the living hell out of the markets when the next wave of foreclosures hits, we have been recommending being cautious sellers of equities and risk in general when the market exhibits bearish divergence. For the past week or so we have reaffirmed our bearish sentiment, and the S&P daily chart is fairly self explanatory. Yesterday morning however we had warned against a possible bounce on the 1085 support as the short-term indicators were struggling to confirm further downside. Now that the bounce is upon us, we eel that the correction has taken its course. From the lows yesterday we have an a-b-c formation with c=a just about exactly, and we failed today on the 61.8% retracement of the sell-off from the highs. Given that daily indicators still paint a very bearish picture, we would recommend selling risk again. We note that NZDUSD has bounced and tested its 50-dma as resistance today, and AUDUSD has come back on the 0.9179/0.92 resistance zone we mentioned yesterday. Levels here to play risk aversion are favorable indeed! The only surprise would be EURUSD which has hardly retraced any of its recent weakness along with the other assets it usually correlates positively to. We will keep an eye on this pair as we would have preferred if it confirmed today's market dynamic. On the flipside we are right back close to recent lows on EURAUD, and this offers a great opportunity to buy this pair here.
Good luck trading,