Moving Averages

The technical set up on Gold looks increasingly bullish and Citi's FX Technicals group continues to expect further gains. The picture on Silver also looks constructive and Citi notes, over time it may well outperform Gold. A weekly close above the $1,434, if seen, would suggest extended gains towards $1,685 and beyond. As they warn (gold bears), we may have “seen this movie” before... as late 70s deja-vu happens all over again.

There are two major concerns that everyone should be concerned about that we see taking this sell-off further and faster than anyone else expects...

Across the spectrum of the US, Europe and Japan we have seen we see many stock markets that are “bending” towards pivotal supports and, Citi's FX Technicals group notes, A break below these supports, if seen, would suggest that we could see much more significant corrections lower across the board - "Any which way you look at it this market has a lot of potentially concerning developments but all the 'bricks' have not yet quite fallen into place here." However, as they add, VIX is showing such as move that "if seen" would almost certainly suggest a high to low move in the S&P of "double digit percentages."

As Citi's Tom Fitzpatrick, a number of local market currencies are increasingly coming under pressure and look likely to fall even further. Whether this will turn into a dynamic as severe as 1997-1998 in unclear; however, at minimum Citi believes the “change in course” by the Fed in December (guided since May) has become a “game changer” for the EM World. The greatest monetary experiment in the history of the World is being wound down. In a globally interlinked economy it would be “naïve” to believe that the big beneficiaries of this “monetary excess” in recent years would be immune to the “punch bowl” no longer being refilled constantly.

The Fed's announcement Wednesday to begin the tapering of its bond buying program (to our surprise) has been followed by a spike in the US 10 year yield; however, Citi's FX Technical group cannot help but feel that we have seen this dynamic play out before.

The % of NYSE stocks above their 200-day moving averages has a strong bearish divergence similar to previous plunge-preceding divergences. As BofAML notes, this points to diminishing momentum for market breadth and preceded pullbacks in the range of 15%-20% in 2010 and 2011; increasing the risk for a US equity market pullback in 2014.

It may appear to be safe for everyone to be on the same side of the boat, but the gunwale is awfully close to the water.

Just when the dollar's last rites were being considered, it has bounced back and looks poised to move higher in the days ahead.

Gone are the days where people looked towards next year when building their portfolios, or five years down the road as they approach retirement. Now from a combination of apprehensiveness and shear paranoia in our unstable markets, investors are looking only as far as they can throw for their personal investment decisions. In more than 30 years of money management, Lance Roberts has never seen such a rapid change in the way people make financial plans. Instead of saving for the future, many are opting for fast gains - yet at the same time they want low risk. Others are playing it completely safe. In fact, in a quarterly poll, 83% of respondents said they were holding on to their cash versus investing in the stock market.

In the long term, it will ultimately be the fundamentals that drive the markets. Currently, the deterioration in the growth rate of earnings and economic strength are not supportive of the speculative rise in asset prices or leverage. The idea of whether, or not, the Federal Reserve, along with virtually every other central bank in the world, are inflating the next asset bubble is of significant importance to investors who can ill afford to lose a large chunk of their net worth. It is all reminiscent of the market peak of 1929 when Dr. Irving Fisher uttered his now famous words: "Stocks have now reached a permanently high plateau." Does an asset bubble currently exist? Ask anyone and they will adamantly say 'NO.' However, maybe it is precisely that tacit denial which might be an indication of its existence

As stocks press back towards all-time highs amid a US government shutdown, extreme weakness in earnings pre-announcements, slower-than-expected China growth, Europe's recovery in doubt, and a looming debt-ceiling debate in the US, we look at four 'big picture' charts of dismal divergences that suggest it's not different this time at all...

With TrimTabs seeing real wage and salary growth at a mere 0.7% year-over-year in August, some of the more 'robust' expectations for tomorrow's non-farm payroll report appear a little exuberant. However, Goldman's 200k estimate (based on 24 labor market indicators) suggests there will be enough to provide cover (aside from the cornering via sentiment, deficits, technicals, and international resentment) for a Fed "Taper." SocGen's Brian Jones is top-dog at a stunning 220k expectations (2-sigma above the 180k median expectation for 'probably the most important data point in the world'). At the other end of the scale of 95 estimates summarized below by Bloomberg, is TrimTabs' Madeline Schnapp who sees a 5-sigma miss at a mere 79k jobs added. Goldman expects the unemployment rate to hold steady at 7.4%.

Last week's 90%-down day and TRIN (market-breadth) above 2.0 provided the ammunition for an oversold bounce but as BofAML notes, there is plenty of resistance to limit upside. With 1658 as critical resistance (S&P 500 cash traded 1651 this morning), the following charts show the weight of evidence suggests deeper downside risk to the June lows around 1560.

The Fed's GDP forecasts are still too optimisitc even after the Q2 GDP revisions.  And the core PCE deflator is closer to zero than it is to the Fed's target.  Tapering still a done deal ? 

With Silver's strong recent run, Citi FX Technicals suggest the present technical set up is now starting to look very constructive. At the same time, they add, Gold is also starting to move higher; and trending moves in the precious metals (up or down) tend to be led by the Silver price and the Gold/Silver ratio remains supportive of that view again. Given that they remain cautious near term about the fortunes of the US Dollar, all of the above would suggest, Citi concludes, that the "playbook" is to be long Silver against the USD.