The Air Is Getting Thin Up Here


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Rabbie Gill

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The Air Is Getting Thin Up Here

As the S&P500 rallied to all time highs, breadth is getting thinner up here even as the move up doesn’t appear complete.  Risks on the long side of the market are elevated as it targets the 3,011 to 3,040 levels.

The Gov’t of Canada 10-year yields have been range bound between the 1.50% and 1.80% range, short-term consolidations are normal after the large move lower since Oct 2018.

Gold’s monthly cycle has turned down triggering a monthly bearish trend change with expectations of lower prices.

Market Trends

  • The S&P 500 Daily cycle has turned bearish, while the Weekly cycle remains bullish.
  • Can10yr rates are weakening on Daily and Weekly basis, and bullish on the Monthly.
  • USDCAD Daily, Weekly and Monthly cycles remain bullish.

TRI Cycle & Trend Signals*

The TRI Cycle and Trend Signals are shown below.  These signals are as of market close on May 3, 2019.  Please see the TRI Overview document for further information.

Source: Fieldhouse Capital Management

Equity – Air Is Getting Thin Up Here

In April the S&P500 rallied to all time highs, moving through the resistance zone of 2,800 to 2,880 TRI highlighted in early 2019. Technology led the way, with Microsoft and Apple hitting all-time highs and their market caps now exceeding a trillion dollars each.  Interestingly, while the S&P 500 hit all time highs, only 13 of the 500 stocks in the index hit new all-time highs. Furthermore, the number of stocks above there 200 day moving average is less than 10%.  Breadth is getting thinner up here even though the move up doesn’t look complete.  Risks on the long side of the market are elevated.

TRI believes easy part of the move higher was completed in the 2,800 and 2,880 zone and we are now in riskier phase. The previous resistance level at 2,880 is now support and the key level to that needs to hold to maintain this rally to target the 3,011 to 3,040 levels.


On May 2, the S&P 500 triggered a daily bearish trend change indicating the current Daily Cycle has likely topped, with expectations of the cycle low to be in the May 5 to May 25 timing band. The Weekly and Monthly Cycles are both still on bullish trends.  We will need to see weekly and monthly swing highs and turn down in our trend indictors to indicate these cycles have topped.  Expectations are for the Weekly Cycle to bottom with either the current or the next Daily Cycle low.   The bounce out of the next Weekly Cycle Low is very important in signalling this relief rally is exhausted, and we turn back down to re-test the Dec 2018 lows.

Under the hood, negative divergences continuing flash warning signs, with indicators such as MACD and ROC failing to make higher highs even as new highs are made in the headline index.  The NYSE Composite index has failed to make a new high as it rallied out of the Dec 2018 low, and the McClellan Oscillator is not making higher highs either. This is concerning as fewer and fewer stocks are driving this rally.


Canadian Banks / Financials Update

The XFN ETF surged to new cycle highs in April with Daily and Weekly Cycle bullish trend changes out of the Mar 21 low.  The XFN has managed to surpass the 2018 highs as well.  Does this price move invalidate TRI’s concern of potential price weakness into 2020?  No, it does not, but it does change the potential cyclical phasing.


The TRI is following 2 alternative phasing of the XFN ETF potentially completing an early 4-year cycle low in Dec 2018 and has now started a new cycle higher.  If this phasing proves to be correct, and the XFN ETF peaks within its first monthly cycle up, then we the potential downside will be extended.  The other potential is the XFN is in a countertrend bounce higher that will exhaust before July 2019 and turn lower. In either case, TRI remains cautious as we await further price action to confirm cyclical phasing.

Fixed Income – Range Bound

In April, the Government of Canada 10-year yields traded between the 1.50% and 1.80% range.  The Daily and Weekly Cycle trends are bullish (higher yields) which are likely countertrend moves as the larger Monthly Cycle continue to point to lower yields.  Short-term consolidations are normal after the large move lower since Oct 2018.


Growth Slowdown – Global & Canada

The Canadian Yield Curve continues to be inverted with short-rates yielding more than long-rates. TRI is patiently waiting for interest rates at the front end of the curve to start falling.  Lower short-term interest rates are expected as economic growth both domestically and internationally continues to falter.  In fact, globally, over $20 trillion of debt has negative yields as a result of structurally slow growth. The table below, highlights the percentage of countries with the current year-over-year growth exceeding the previous 3-year average growth is falling.  The last 3 instances we encountered such slowdowns, 2006-2008, 2010-2012 and 2014-2016, interest rates fell dramatically. We don’t expect this cycle do be any different but do remind readers nothing moves in a straight line.

Source: Bank of Canada

In Canada, as per the April Monetary Report the Bank of Canada has reduced its 2019 growth expectations to just above 1%, before rebounding to 2% in 2020.  TRI believes the Bank of Canada is being optimistic in its projections, especially for 2020 as economic headwinds will likely peak in 2020 leading to economic recovery to be pushed out to at least 2021.

Source: Bank of Canada

Currencies – New Highs for US Dollar Index

The US Dollar represented by the DXY Index has broken out to a new cycle high.  Jan 2019 likely marked the latest monthly cycle low, which was the first monthly cycle out of the Feb 2018 4-year cycle low.  The Weekly Cycle is on a bullish trend signal which we expect to keep moving higher over the medium term.


Economically, evidence continues to mount of potential US Dollar shortage, which support TRI’s expectations of a stronger US Dollar.  On May 1, the Federal Reserve Lowered its IOER rate by 0.05% to 2.35% while leaving the Overnight Rate unchanged.  Curious to know why $3+ trillion Fed Balance Sheet is facing a liquidity shortage…  time will tell.

Furthermore, the chart below highlights how the USD tends to be a countercyclical currency. That is, when Global Growth is positive then it tends to weaken, and when Global Growth is slowing it tends to strengthen.  This is consistent with TRI’s investment process pointing to a stronger US Dollar into 2020.

Source: BCA Research

The USDCAD traded in the 1.34 range with several higher lows since the Jan 31 daily cycle low.  The weekly and monthly trend for the USDCAD remain positive, with expectation of higher levels (weaker Canadian dollar) into 2020.


Commodities – Gold Looking Weak

Gold is a very polarizing investment asset. The bulls say gold is the only medium that truly holds value given its limited supply and endless money printing from central banks. The bears say gold has no true economic value. The TRI believe gold like other securities moves up and down in repeatable cycles of several varying degrees of time.

Gold rallied into Jan 2019, making a new monthly cycle high 6-months after bottoming in Aug 2018. As of Apr 2019, Gold’s monthly cycle has turned down triggering a monthly bearish trend change.  Gold failed to surpass the Jul 2016 or Apr 2018 highs before turning down. The next monthly cycle low is expected to be between Jun 2019 and Dec 2019.


The Weekly Cycle for gold has is also on a bearish trend signal and moving into oversold territory. TRI expects lower prices until we see a weekly swing low in addition to a turn up in our indicators. This weekly up-turn will likely be countertrend before failing to below $1,200.  A move above $1,340 and then $1,370 would nullify the above expectation.




* TRI Cycle and Trend Signals are dynamic and may change on a daily, weekly and monthly basis, without notice. The indicators are at a point in time and do not imply that the current trend will persist and should not be considered investment advice.

Disclaimer: This material has been provided solely for information purposes for the use of the recipient and Fieldhouse Capital Management Inc. (FCMI). This material does not constitute an offer or an invitation by or on behalf of FCMI to any person to buy or sell any security. It should not be assumed that the methods, techniques, or indicators presented in these pages will be profitable or that they will not result in losses.  Any reference to past performance is not necessarily a guide to the future and the value of investments may fall as well as rise.  FCMI accepts no liability for any direct or consequential loss arising from investments made in accordance with the attached material. The research and analysis contained in the attached material has been procured from sources which are believed to be reliable and accurate.

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