Trend Status Update
Weekly Trend Status Review
S&P500 posted its best weekly gain so far this year, adding +2.5% (YTD +12.6%) while the Nasdaq jumped +4.2% (+15.6%). This weekly move set the S&P500 above its 200dma (i.e. in technical bull trend according to our definition) and restored the Nasdaq in a leadership position as it also entered break out mode, trading with a Z-score of 2.4 (i.e. 2.4 standard deviation above its 20dma). Apple rallied back 7.6% on the week (+18% YTD). Implied volatility dropped further and the risk reversal on the S&P500 rose to -3.3, suggesting a lack of investors’ appetite for hedging in the option market. Despite gaining 26.6% so far this year, Facebook hit a road bump in the latter part of the week as the company faced criminal charges for its handling of private data. FB also lost a key product development executive and faced some stern criticism for its handling of the “live streaming” of the terrorist attack in New Zealand. The company is also in the short list of key tech giants that E. Warren would like to see broken up for abuse of dominant position, a debate and political posture which seems to be gaining in intensity. US and International equity markets were driven mostly by Tina (“There is no other alternative (than stocks)”) and Fomo (“Fear of Missing Out”) which continued to fuel a powerful short covering rally. Sentiment also remained buoyed by a push towards more of a central banks’ global reflation effort on government bond yields which dropped further. European and EM equity markets outperformed on the week with Chinese CSI300 posting the largest 4.5% weekly gain (+28.2% YTD) as investors position to reweigh their Chinese shares holdings in light of benchmarks reweighing and as this market remained supported by the PBOC recent easing action aimed at facilitating the financing of small companies. The Fed meets next week and it will be interesting to see if it tries to temper investors’ enthusiasm or if it becomes more explicit about the further monetary stimulation it has in store for the US economy. In a recent CBS 60 minutes, Fed Chair Powell called the current rate levels “appropriate” and “roughly neutral”. The Dollar index (DXY) dropped -0.7% (+1.4% YTD) and the MSCI EM currency index rose +0.5% on the week (+1.8% YTD). In the EM currency space, the Indian Rupiah rallied among the most, breaking through its 200dma with USDINR closing below its Bollinger band as well. Russian Rubble performed equally well and both USDINR and USDRUB approached a “death cross” formation which could herald additional losses for the USD against these two currencies. Among the G7 currencies, JPY showed signs of weakness as risk sentiment remained buoyant and as some investors started to reconsider recent JPY gains in light of the epic monetary stimulus the BoJ has unleashed and stands ready to pursue after 20 years of 0 interest rates, massive asset purchases, yield curve control and its recent airing of the possibility to target negative long-term yields. 10y US Treasury yields slipped -4bps to 2.59% while German 10Y Bund yields rose +2bps (to 8bps). US yields fell despite data coming generally stronger last week. New orders of US made capital goods rose the most in 6 months in January by +0.8% and January construction spending jumped +1.3% as well after a revised -0.8% drop in December. So-called bond king J. Gundlach (founder of Double Line) rebuked an increasingly popular theory (MMT) as a “crackpot idea” and a “complete nonsense” used to justify excessive spending. Talking of which…US President D. Trump presented his newest budget forecast expected to top 1 trillion in 2019 and to stay above that level until 2022. Italian bonds outperformed as Italy said it was considering borrowing from China led Asian infrastructure Investment bank as part of plans to become the first G7 country to endorse the Belt and Road investment program. Credit markets (HY) outperformed across the board as the liquidity push contributed to also reduce risk premia. Gold gained +0.5% (+1.6% YTD), also in response to the liquidity push and some dollar weakness witnessed last week. The Goldman Sachs Commodities index jumped +2.5% (+15.5% YTD), led by crude adding 4% which added a 2019 high on Friday ahead of this week’s OPEC meeting
after lower US inventories last week and continued pressure to take Iranian oil offline.
Why Trend Following Matters and How It Can Help You? The last months of 2018 have shown how hard and fast markets can fall. Trend following offers guidance as to when to get in and when to get out of an asset class with changing trend characteristics. A disciplined and rule-based trend following investment approach can serve as an effective portfolio insurance technique. Our purpose, beyond tracking economic, political and monetary developments is to assist readers investing in global markets with a view on trend formation in all important asset classes. For last Friday’s Global Tactical Portfolio update, click here . To receive our daily updates and market reviews, consider our premium research: https://www.bentinpartners.ch/research And join our free trial. https://www.bentinpartners.ch/subscribe
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