Mentioned products: SPX, RUT, JPM, TLT, EURUSD, EURGBP, GC, URA
Let me start with one of my favourite equity top indicators because there is quite a lot of top calling lately. We are probably not too far away from the time when a major top will be formed and we will head into a recession, but I don’t think we are there yet.
I am aware that the economy as a whole is not super healthy, but let me show you the 2-10 yield curve published by St Louis FED. Shaded areas indicate a recession and we are quite far away (at least few months) from the 0% line where economy and equities start showing some serious signs of weakness.
What does that mean for the S&P right now? Sure, the upward momentum is waning and we could see a correction, but likely not a major bear market yet. As discussed last week, Russell 2000 is still trading above the key support line and if it doesn’t hold, SPX could follow lower.
At the moment SPX is below the green channel and was successfully contained in the red one – bulls had their chance to get the price back in the green channel on Wed but failed to do so.
While contained in the red channel SPX is quite vulnerable for further weakness… and bonds could help to expose this vulnerability if they break higher. TLT is developing quite a nice small base just below a major resistance level.
If we break higher, we could also see some weakness in the US banks. For example JP Morgan looks quite heavy/corrective up there…
What does all of this mean in the currency world? While a long term bull in EURUSD, I don’t expect we will break lower just yet. Should the US bonds break higher would offer some support here as well. Regardless, a short term correction would be expected. Key level to watch is still 1.05 but break below the green trendline would already be very bearish.
EURUSD’s action will be very important for gold’s development. Did we just see a rejection of a break higher attempt on Friday? Based on price action in silver (bearish engulfing?), this could probably the case. I guess next week will be telling.
One to put on a watchlist is also EURGBP which is forming a very nice symmetrical triangle.
And let me finish this week with a great setup in Global X Uranium ETF. After a really aggressive rally in Q416 a corrective wedge developed. Could we now continue higher again?
I would recommend you to read last week’s post as ideas in that post are still very actual and I won’t go through them again to keep the post brief.