Weekly market review Nov 13 - 17 Part 2 (Relevant macro charts, likelihood of pull back in the near term, bond market review )
Are you not entertained ( and frustrated) by the relentless rally in the market ? A combination of pricing in Nvidia earnings ( semiconductors rising ) and Shallow market depth in the shorten thanksgiving holiday likely magnify the upward move. Also, leading sectors weekly charts cup and handle pattern has been completed and are breaking out upwards or are close to breaking out
Semiconductors and tech sectors are leading the gain for overall market. If Nvidia earnings is not as high as investors expect, then there could be some profit taking and retracement. ( buy the Rumor, sell the News ) If institution equity allocation are still not sufficient, then investors might buy again.
Macro charts and institution positioning
Let us review some relevant macro charts. These charts will shed light on relevant drivers in current economic drivers ( previous monthsssss.. market driver ) and future economic drivers ( current or past few weeks market drivers )
Current Debt/Income situation of US household
Per JP Morgan and fed data, Debt to income ratio of all household groupings are Far below 2008 GFC level, and below 2020 pandemic level. Income stabilizing, debt balance are turning down gradually.
Petrol pump price in US is lowering to before pandemic-supply-chain-disruption level, which should leave US consumers with more disposable income going forward.
Copper
Copper a Current/future economic growth indicator is screaming BULLISH now. Not since 1994 have we seen a Contango this large, the magnitude of turn from Backwardation to Contango is unprecedentedly HUGE.
Those who has read my weekly market review Oct 23-27 part 1 should not be surprised because China liquidity is surging rapidly since Xi JinPing visit to PBOC. Economic momentum and Shipping activities are rising post liquidity injection. What comes next would be rising demand for commodity as china factories are coming back big time and swallowing all the raw material input.
Deutsche bank equity positioning and investors style %
Latest data from Deutsche bank, institution equity positioning edge up to 49% ( from 40% in previous weeks )
discretionary investor vs Systematic investor % ( sharp turn in green line )
Current week: discretionary 69% vs Systematic 34%
Last week : Discretionary 53% vs Systematic 31%
Why is there a sharp increase in discretionary investors % again this week ? Because liquidity and macro conditions are turning in a big way, you can’t wait for the system to give you a signal to enter the market. Early bird catches the worm and institutions cannot afford to be late to the party.
Pullback in the near term ?
Recently, I came across study done by Mark Ungewitter on 3 Gaps. If you don’t know about this 3 gap yet, the chart post market bottom Oct 27th and the subsequent reversal should be etched that in your memory permanently by now.
3 upside gaps with 0.4% difference each within 10 sessions has happen 7 times in the past history. Excluding current occurrence post Oct 27 Reversal rally,
Gaps not fill and not tested subsequently : 3 out of 6 times
Gaps retrace and fill immediately : 3 out of 6 times
Gaps fill within 6 months : 1 out of 6 times
Gap fill within 1 year : 2 out of 6 times ( including within 6 months occurrence )
Gap fill 2 year later : 1 out of 6 times
One observation stands out to me, among those 3 gap that are not fill subsequently, they have been support & resistance level , Liquidity base in previous year trading memory. In other words, if it’s tested multiple times before in previous support/resistance zone, it will not be revisited again. Based on this observation, these 3 gaps will most likely not be tested in the future
Also another subtle observation, if gaps occurred where it’s not tested before as support/resistance zone in previous years, which 2017 1H 3 successive gap, it would eventually be retested subsequently in 2018 trade war market final crash and 2020 pandemic final plunge.
Mark Ungewitter also posted a fail breakdown chart pattern by 30 October, detailing when to get in. this is another chart that should be engraved in our mind, because it would have prevented the regrets of not getting in the rally, not escalating the equity exposure fast enough. Therefore in future, buy and buy more when it get back above broken support line. ( around 14500 level in Nasdaq 100 )
Leading sectors weekly chart
In the weekly charts of leading sectors (Tech, semiconductors Communications, discretionary ), we are seeing many cup and handle patterns breaking out or are close to breaking out.
TLT (20+ year treasury bond ETF )
In the Weekly chart, MACD has crossed over. TLT Reversal momentum will pick up soon and long term yield will trend down subsequently.
10Year Treasury note
In the Weekly chart, MACD has crossed over. 10 year note price reversal momentum will pick up soon and 10Y Yield will trend down subsequently.
In the coming days, I will look for signs of overbought and retracement in the technical charts to determine when the stalling/retracement might occur and what is the subsequent entry point. ( the current rally may still run up a bit more )
Disclaimer : The information presented here are for research and education purpose only, and does not constitute investment advice, trading recommendation, author shall not liable for any action taken by any individual/company with regards to the information presented here or any part of the website - https://marketcycleedge.substack.com/