Weekly Chart Flow

Weekly Chart Flow: 1.13.2019

Global markets were bid in week two rising 2.4%, led by the Americas (IWM +4.73%, ILF +3%) and Asia Ex Japan (2.9%).

Q3 hedge fund letters, conference, scoops etc

Weekly Chart Flow

Sectorally, technology was strong across the board, with Asia tech +6.7% w/w. Energy was bid on the back of crude’s 7.6% gain, and industrials were notably higher.

Weekly Chart Flow

While markets have started off the year strong, we are beginning to see some upside exhaustions, with the S&P, NDX, and Russell all on 6 / 9s.

Weekly Chart Flow

Euro Stoxx 600 on 9 / 9

Weekly Chart Flow

Japan on 6 / 9 (EWJ 9/9)

Weekly Chart Flow

And China on 6 / 9 as well.

Weekly Chart Flow

Market optimism may be a result of China throwing the kitchen sink to support the economy with a few initiatives:

  • China to cut small co’s taxes by 200B Yuan annual for 3 years
  • China reported to increase target budget deficit this year to 2.8% from 2.6%
  • China approves $125B of rail projects in fiscal stimulus
  • China cuts RRR by 1%

But as we outlined in Bonds and Chill, the next leg of global growth will be a driven by China’s ability to expand M1, which based on RRR cuts and falling 3 year yields seems probable.

Weekly Chart Flow

And under the assumption that this turns higher, Chinese equities look interesting from a valuation perspective.

Weekly Chart Flow

Across nearly every sector.

Weekly Chart Flow

Specially from March to June given historical seasonals.

Weekly Chart Flow

But global liquidity still remains a concern into the summer.

Weekly Chart Flow

And spreads are saying Spoos might need another date.

Weekly Chart Flow

As EPS estimates come in materially.

Weekly Chart Flow

Though @McClellanOsc  indicated this might be a contra indicator.

Weekly Chart Flow

And we could potentially see the market grind higher, as capital chases price following record outflows.

Weekly Chart Flow

Maybe that will finally force the kids out of the basement.

Weekly Chart Flow

And improve confidence.

Weekly Chart Flow

Especially among CEOs. (H/t @stockboardasset)

Weekly Chart Flow

If not, we will likely see the dollar turn lower, which there is technical evidence of as well.

Weekly Chart Flow

And falling rates won’t help.

Weekly Chart Flow

Which will weigh on the S&P, as Fins make up 25% of EPS growth.

Weekly Chart Flow

Though if the Fed keeps rolling off the balance sheet, we may see the dollar move higher which will further weigh on earnings.

Weekly Chart Flow

Only tech can save us.

Weekly Chart Flow

Though not if margins mean revert.

Weekly Chart Flow

Or maybe the opportunity is in EM.

Weekly Chart Flow

Especially if we can get Central Banks to back off.

Weekly Chart Flow

Have a good week.

Article by Teddy Vallee, Pervalle


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