Sorry for the cheesy headline. I couldn’t resist.
Anyway, I know everyone is worried about rising rate environments and whatever China is up to or not up to these days, but I think one of the most interesting scenarios globally right now is actually what’s happening in Turkey. I’m not one to ever watch TV or read the news, but I do see headlines coming across the stocktwits and twitter streams which gives me a pretty good idea of what they’re talking about. Generally, it’s either too late or not relevant. So I think the fact that Turkey is not getting much press these days means we might be on to something.
Here’s what I’m seeing. This is a weekly candlestick chart going back to that epic crash back in 2008. After the 2010 peak, prices corrected nicely and found support at exactly the 61.8% Fibonacci retracement of the entire rally. Once again these levels come into play beautifully. I still don’t understand how so many people purposely choose to ignore them. Anyway, prices then bounced in 2012-2013 towards those former highs before rolling over to find support once again at that key retracement just above $41. Notice how weak the next bounce in 2014 turned out to be. It was a heads up that we could ultimately break the support that had held since 2011. Sure enough, we are now below all of that support:
This is a problem. Sometimes you get failed breakdowns that turn into a whipsaw, which becomes the catalyst for a nice rally. Long time readers of the blog and Subscribers to our research know that I love those. But they generally have to come quickly. In this case, prices have now been below all of this support for several weeks. Not good.
This next chart is a little bit of a close-up to what’s happening here. I included momentum down below to show how the recent oversold conditions are confirming the new lows. We’re using a 14-period RSI which remains in a bearish range and has not put in any divergences that could point to a possible reversal:
Price target-wise I’m looking at just above $27 which represents the 161.8% Fibonacci extension of the most recent rally last year. This was the last bounce off that key $40 support level first mentioned above. I think that’s where we’re headed and where we want to be covering tactical short positions. This represents another 25% decline from current levels. That’s a lot.
Risk management-wise, I see no reason to be short Turkey if prices are above that former support since 2011 near $40. But I would be an aggressive seller into any strength near that level as former support turns into overhead supply. We recently saw this happen in the S&P500 (See here).
I think Turkey is in a lot of trouble.
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Tags: $TUR $SPY