We've all heard about "Dr. Copper's" ability to gauge global economic growth. What is not discussed as much is that Copper is very highly correlated with Emerging Market stocks, not so much developed markets. With Copper right now setting up for a potentially outsized move, the implications of its direction will likely impact stocks throughout the emerging markets space.
This is one of my favorite things to do: Forget everything that happened in the first half of the year and start from scratch. It doesn't matter what we did or how we felt in early 2019. It's irrelevant. We're moving forward. This is my Q3 2019 Playbook.
Here is the video from my BNN Bloomberg interview this week. We talk about the implications of a weaker US Dollar, including what that would do to stocks, emerging markets, metals and others. I've been waiting for it all year. But think about it. We've already seen some of the things we would expect to see in a weaker Dollar environment. Gold strong, for example, and an inability for the Euro to go lower. So for me, I think this Dollar fall is just getting started.
One of the hardest things to do in life and in markets is admitting you don't know. But when you're only in the market to make money, and not to be right, saying I don't know can often be the best answer.
That's why I put out a post titled "Relatively...Confused" just two days ago because when I go through my chartbooks I see extended themes that are not offering great reward/risk opportunities right now.
Paul Ciana and I go way back to 2006 when him and I were studying for the CMT exams together. Today, Paul is the Chief FICC Technical Strategist at Bank of America Merrill Lynch Global Research. In English, that means everything outside of equities. It's nice to see your friends succeed and watching him crush it is definitely one for the good guys.
With the Chinese Internet Index closing at new 7-month highs this week, have we seen the move already, or are we just getting started?
One thing we know for sure by studying history is that stock prices trend. That's why Technical Analysis works. These tools help us identify those trends. Many academics will tell you that these consistent series of higher highs and higher lows over time are just random. The truth is you can show these charts to a 5 year old and the kid will tell you that yes, this stock is going up, or no this stock is going down. You can even argue that a trend is sideways, but that is trend recognition nonetheless.
It's very clear that markets trend, particularly stocks. They go up over time and they go down over time. A stock making new highs has a higher likelihood of continuing to make new highs vs turning around and beginning a new trend. An object in motion tends to stay in motion, is how Newton taught us. It's the same in stocks, which are driven by e-motion. (See what I did there?)
Last week in our note to Institutional Clients we highlighted the potential for mean-reversion in the relative performance of Small and Micro-Caps, driven by rotation into Financials and Healthcare.
Below is a chart of the Micro-Cap Index (IWC) relative to the S&P 1500, confirming a failed breakdown and bullish momentum divergence. As long as prices are above 0.1405, this ratio looks ripe for some mean-reversion to the upside.
Click on chart to enlarge view.
Same goes for the Russell 2000 relative to the S&P 500, failing to hold its new marginal low as momentum diverges.
Interest Rates in the United States hit new 52-week lows last month. But from the looks of it, the commodities market and stock market are not in agreement with that direction. It's when we see divergences among asset classes that it gets my attention.
Today we're looking at the divergences between stocks, bonds and commodities that I believe are pointing to higher rates this quarter. If we're going to take the weight-of-the-evidence approach, it's 2 to 1 in favor of rising interest rates.
One of my good college buddies always busts my chops because he thinks it's ridiculous that look at charts all day. Today he calls me about some other stuff, but randomly asked what was my favorite chart. I'm like, "...of all time or right now?". He said right now, what's my favorite chart?
It got me thinking. But my first reaction was the SPX/CRB chart. This is one of the most fascinating situations in the world today.
