Fire, Aim, Ready…

The equity markets have confused and whipsawed many investors in 2020 with the boom, bust and boom price action. The S&P500 finished the first half being down about 4% as the global economy came to a standstill. Central banks and governments reacted very quickly to the Covid-19 pandemic by firing bazookas of monetary stimulus and fiscal programs, only to figure out where and how those programs could best be implemented, but before they understood the root cause and symptoms of the economic and market issues. Fire first, aim second and finally be ready and figure out why you did the first two. Mind-boggling to the TRI, and fraught with many intended consequences.

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The Tale of Two Markets

The S&P500 Index has rallied 25+% from the Mar 2020 lows to the shock of many as the global economy was screeching to a dead stop. Have the central banks provided enough stimulus and backstops to get this global economic engine back on its track? For long-term investors, the 6 to 7% upside from here needs to be balanced with the potential of the 25% to 40% downside remaining.

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How Many Negatives Make a Positive?

How Many Negatives Make a Positive? For all intents and purposes US and Canadian real interest rates are now negative across most of their yield curves.  Should investors listen to the bond market which sits at historically low and negative interest rates or the S&P500 that is again flirting with all time highs?  TRI advises caution for risk assets, as the topping process for equities continues and we do not yet have enough negatives to make a positive risk/reward profile for risk assets. The business cycle is declining and on the cusp of contraction.  The Federal Reserve and the European Central Bank confirmed this as they lowered there key short-term lending rates again and are again implementing various forms of Quantitative Easing. Source: Tradingview.com Longer term (10 and 30 year) US nominal interest rate now average around 2%. As seen below, US inflation is averaging about 2%.  Two minus two equals zero. The 10-year term real interest rates are -0.3%.   Even the 0.25% countertrend bounce higher in interest rates since early September has not put a dent in the downtrend in rates. Source: www.bls.gov Daily and monthly cycles and trends are bullish for the bonds, while the weekly cycle and…

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Another Trap Ahead for Both the Bears & Bulls?

Another Trap Ahead for Both the Bears & Bulls? The topping process for equity markets is just that, a process. The process catches many investors off guard as the numerous twists and turns whipsaw their conviction and positioning.  TRI’s anticipatory indicators continue to point to significant economic headwinds in the year ahead.  TRI believes this will result in risk assets being re-priced materially lower.  But before we get there, the risk markets appear to be setting up two more traps, one for the bears and then one for the bulls, before the larger degree sell-off materializes into Fall 2019 / Winter 2020. Source: Tradingview.com Bulls and bears alike have become more polarized from the current market action.  TRI is neither a perma-bull, nor a perma-bear.   TRI’s endeavors to provide independent and objective market insights and portfolio management through a proprietary and repeatable investment process anchored around the business cycle. TRI process is probability based, as there are not guarantees or certainties with investing.  At times TRI might be early or late on call and will openly acknowledge misses or changes in our expectations as new information surfaces. TRI’s goal is to protect our client’s capital and grow it regardless of…

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The Air Is Getting Thin Up Here

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…

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Risks Are Rising, Breadth Is Falling

Risks Are Rising, Breadth is Falling The S&P 500 has rallied to the 2,800/80 resistance zone with an increasing number of negative divergences, hinting that the move from Dec 2019 is close to a finale.  The Canadian Financial sector is likely to correct greater than 15%, as it moves into the 4-year cycle low. The move down in Can 10-year rates is stretched and rates can consolidate or even have a counter-trend bounce higher as it digests recent price action below the 1.80% resistance level. Market Trends The S&P 500 daily cycle is in the final stage of topping, which will lead the topping of the weekly cycle as well. Can10yr rates triggered a daily sell signal, but this move into the daily cycle low should be counter-trend move before rates continue lower. USDCAD daily cycle is topping, while longer-term weekly and monthly cycles remain positive. TRI Cycle & Trend Signals* The TRI Cycle and Trend Signals are shown below.  These signals are as of market close on March 29, 2019.  Please see the TRI Overview document for further information. Source: Fieldhouse Capital Management Equity – Risks Are Rising, Breadth Is Falling The S&P 500 has rallied to the 2,800…

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Relief Rally is Now Overextended

Equity Relief Rally is Now Overextended The S&P 500’s “V’ shaped recovery from the December 2018 low is now topping with daily bearish trend change.  The monthly and quarterly swing highs in the fall of 2018 signal we have likely seen the 4-year cycle top for the S&P 500, while the larger 4-year cycle low is likely still approximately a year away.  TRI expects the S&P 500 can hit the 2,800+ level before rolling over and falling to the 2,100 to 2,200 level into the 2020. The Bank of Canada and Fed interest rate hiking cycle is likely over.  TRI has been warning of the risks of higher inflation are unlikely to materialize as economic headwinds mount.  Central bank capitulation implies a flat yield curve, consistent with TRI’s expectation of lower interest rates and flat yield curve. Market Trends The S&P 500 will likely have another 1 or 2 daily cycles higher into May to July 2019. The structure of current daily cycle low and subsequent price action will be important in determining the potential final upside targets and timing. Government of Canada 10-year rates topped in October 2018 marking daily, weekly, monthly and 3-year cycle tops. Bonds currently have…

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