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Setting Up For A Return Of Risk Appetite Temporarily
By Nic Lenoir Of ICAP
First a disclaimer: I remain very bearish long term for equities and risky assets in general. However in the short term we see that technically we get some clear divergence in the momentum of this last risk aversion move.
We focus on the S&P future and the Bund this morning. S&P futures show quite a bit of bullish divergencee and the RSI is on support as can be seen on the 180-minute chart. It is still possible that we are setting up for a massive move lower, but given the price action I expect to see in short order a pull back towards 1,070 and then 1,107 again, which remains the key resistance. People willing to play this tactically can try buying around 1,045 should see a final drop there with a stop below 1,035 in order to play 1,107. The fact we have so much divergence and are closing in on the 1,036 support reinforces our view of a short term bounce. Whether we break 1,107 will determine if we stay in a down trend medium term or could see a larger move up.
Bunds futures have been very frustrating for many people. We discussed at length that balance sheet dilution in Germany should have a been a negative for bunds, and it does not make for a great investment with low yields and a collapsing currency. However risk aversion has put a bid behind bunds and many shorts have been forced to cover. I have been waiting patiently for a short term technical signal to initiate Bund shorts. I think we are getting very close. As can be seen on the 180-minute and 5-minute charts we are completing wave v)) of v/ of 5/. In English it means we are running the last extension of the last extension of the last extension. Targets based on recent price action indicate a 130.10 target while the bigger picture (180-minute chart) points to 130.47. The move has come such a long way that one must be vigileant as upside target might not be reached. We would recommend selling on a break today of 129.50 or wait for 130.10 (September contract). The good news for US traders is that if the trade works out EURUSD should also bounce back a bit so you have positive gamma implied by the concurrent currency move if downside for the Bund materializes. Geeky but a nice extra pick up. On the downside confirmation levels are 128.90 and the main support is 127.65.
Needless to remind you that I think the fundamentals are pointing to an absolute disaster in the markets, but I think that will only really happen when the ISM starts rolling over properly. I think the top is in but I don't think that realization has set in with a lot of the real money accounts. A slow down in GDP and private sector is what will tip the sovereign debt problem over the edge.
Good luck trading,
Nic
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Helpful as always. Longing anything until theres any news would be as bad as shorting was from March 09 to pretty much April of this year... Looking for some good news out of EU soon i guess.
We are approaching a level that many who have been long since last year are beginning to feel edgy yet theyvare confident if they wish to get out at a higher level they will be able to since that was the purpose of all those rallies to absurdity over the past year. To rebuild confidence in order to have traders constantly buying dips in order to cushion the distribution.
We do however have and enormous amount of longs above this level who also have not sold because they await the better prices. The largest down move has yet to come and I believe it is near and this time there will be no bounce. Could be wrong and have been.
Does anyone know whether Nic Lenoir publishes anything other than ZH posts?
I had assumed these posts were "teasers" for a subscription service or newsletter, but when I googled him I found nothing. Does he have a letter or other product to sell, or is he just posting this stuff cause he's a good guy?
xPat
He is a senior strategist at ICAP, which is a brokerage, and whose services & smarts he is selling.
Brokers will in general make money if you buy or sell, as long as you do something with them. So I guess he is much less conflicted than IB analysts.
Too bad he doesn't sell a [more frequent and elaborate] newsletter. I find his stuff to be excellent and wish I could get more...
xPat
I agree. Short, clear, no dribble.
I agree, a bounce is in short order, but I am still short. Will close out today, depending. The Euro has been my driving factor, and lousy news. I just do not know if we will go to 1107. I thought, a couple weeks ago, we could hit 1215 again, but no way now. I just do not see upside strength and do not see a super strong short-term rally, but what do I know.The dollar is not selling off and that is needed for a bounce. However, I do think 2Q earnings will be good, but 3Q will suck. So, i want to be long into earnings season not because I believe, but because everyone else does. I am just greedy.
I think it is done long-term. Unless we can change the structure of our economy, debt and banking structure, I do not see how this thing of ours can continue.
+1
Something has to give. It is antediluvian to think otherwise.
My only quibble with your charts, Nic, is the placement of the Wave 1 and Wave 2 on the S&P future. In my view, the flash crash ends W1. The rally back up is Wave 2.
Either way, great stuff. I really enjoy your commentary.
Why the pessimism?
Wall Street was poised for a higher open on Tuesday after Federal Reserve Chairman Ben Bernanke said the US economy appeared to have enough momentum to avoid a double-dip recession. -- Reuters
That's good enough for me, I am all in!
Ditto! And to think I was starting to lose faith in the V shaped recovery. You know a guy has to be really smart or something to be the Fed Chair.
Excellent observation. Observing the market and the local job market I assumed we were already in the midst of a double-dip recession, but if Ben says we're all good, I guess I'm just mistaken.