Inflation Discrepancy

  • October lead to be the best in global equity recovery but can it continues from here on?
  • Post FOMC – statement is adamant that a rate hike is in store for December meeting
  • Dollar regained footing as market reversed – previously strong Euro and Yen has kept risk on sentiment on a lid
  • Gold and Silver suffered with expectations of an imminent rate hike

Market roared back to life at an amazing speed as global central banks continue with their dose of monetary stimulant. Even though Bank of Japan hold back to expand their easing programme, there was extra budge set aside to maintain a relatively dovish environment. We have covered quiet in detail last week that despite poor economic data and imbalances, equity remains the place for investors to look into. The era of easy monetary policy does not take a sharp U turn and it will take time to normalise. Side effects from several global corporations on issues such as massive layoff and lower earnings will undermine further the need or ability of the Federal Reserve to justify a rate hike.

The real question now is – will we see a December rate hike? It is going to be a multibillion dollar question and no one has a clear answer to it. What seems clear right now is the possible stress that it could bring for the month of November. We envisage a very likely mini rate hike tantrum as it did in the past. Things could get ugly but it is one of the oldest tricks in the trading book to flush out weak longs before the real Santa rally begins. Watching where the VIX currently is, a mini breakout to the top side cannot be rule out. This is certainly one worth watching while trading in November.

β€œMindful that the economy will take time to transition from an industrial led economy to a service one – time, policy changes and additional capital are part of the essential tools to achieve this goal. Market expectation of a strong Chinese economy as the main driver in this global economic recovery is something that will be well supported in many months and years to come. Dovish central banks and easy monetary policy is the way forward as there is no other alternative for now.”

This month we kick off with more economic data from China that will shed lights if their economy has finally picked up steam. Manufacturing data will be closely watched even when most in the industry remains sceptical. Talks of relaxing the one child policy are just some of transition that the Chinese economy is going through. There were even talks of lifting large induced investment going to various parts of China that could lift many out of poverty. What we have argued in many of our articles, income equality has certainly not help to bring a healthier economy. With the minority rich get richer, the rest has to make do with the extra cost of living if they are to consider having a second child in China.

On the other side of the pond, the US economy will also have barrage of data and it is Nonfarm payroll week. Evidence of any good data could well incite the confirmation of a December rate hike. We think that November economic data will be the last card that Miss Yellen can play in her quest of to hike or not to hike.

Dollar Technical Outlook

Last week we highlighted the possibility of an inverse head and shoulder on the dollar weekly chart. This is still possible even when the dollar ended the week with a big red doji as buyers and sellers try to establish grounds. Daily chart shows a much clearer picture of what happened as the dollar index once again hit the top of the Bollinger band and reversed. All the FOMC hawkish gains that were made have lost its shine and we cannot rule out a rather weak dollar going into next week. This could well instigate a short squeeze on the Euro shorts – quiet possible also kick start a deeper pullback in the equity market as risk off sentiment may well sets in.

β€œSo far so good and some would say rather predictable as the dollar index hinges on the very next line that central banks will say. Yes, the dollar index take all the beatings as central banks are doing what they can to jostle with the other – in the name of currency war which they masked specifically as the normal way forward. It is rather clear that dollar strength has returned and there is no masking for another week of higher dollar but we have FOMC and BOJ to take into account. If the dollar continues to rise, Yellen will be pressed to do something about it. The path of least resistance for now is higher dollar but be prepared if it turns if Yellen turn very dovish!”

Weekly

Daily

Gold Technical Outlook

Key level at 1182 proves to be seller’s paradise and there were bull drums with higher gold prices as we went to FOMC statement. The release of the statement sets the bears free and bulls flee – gold dropped from the high to 1152 levels and ended the week lower. It is now at a crucial support level where there is a slim chance for the bull flag to work. It remains risky to go long here but there is confluence of old support from previous run higher. This also coincides with the 61.8% Fibonacci pullback. If this fails, we look for support at 1116 – 1125 levels which is the last support within the bear flag formation.

β€œWe have gold opened at 1177.9 and that is where we started the week with a short position. Two attempts were made to push it higher at 1181 and 1179 but found sellers. It is clear for now that the 50% fib resistance for 2015 high low is the main resistance for now and sellers keep pressing short for now. Hedge Funds been long for the last few weeks and profit taking at this stage is ideal but with all the whirlwinds in the currency market and a strong dollar, gold seems to stand strong. Support for next week comes at important 1158 and 1142 levels – a break below 1158 may incite more selling but also rooms for a potential bear trap. The real battle comes in if we get a good reaction of support at 1142 levels. A fake break is sufficient for the trap to work otherwise, expect a complete move to the lower end of this bear flag.”

Position Valid Date Price Action Stop Loss Target Results
SHORT 19th – 23rd 1177.9 Closed 1193 (moved to b/e now) 1133 (moved to 1153) 0
LONG 26th – 30th 1142 Live 1136 1220

Weekly

Daily

Silver Technical Outlook

Silver took out 16.23 for a while but did not close above it. It has similar fate as the yellow metal, euphoria that lead to sudden bluntness of brutal selling. In hindsight, it look like a very easy trade but we have warned for weeks that the rally remain unsustainable and that it is only a matter of time before it all breaks apart. We now have a bearish weekly candle and a close below 15.60 which we highlighted. The weekly and daily RSI has more rooms to head lower so we cannot rule out a complete run lower to the bottom of the bear flag. We will look to open a small short position at the open and add if Silver test a retrace higher.

β€œAs long as 16.23 is not taken out, silver could head lower. Current price action and structure suggest that buyers are holding on and there is no real conviction to drive the white metal lower for now. However, the landscape is fast changing to favour the down side and risk reward has certainly pointed in that direction. A spike higher here could send prices a lot higher with target such as 16.25, 16.45 and 16.75. A clean break and close below 15.60 may give sellers room to roam.”

Position Valid Date Price Action Stop Loss Target Results
SHORT 12th – 16th 1608 Closed Moved to b/e 14.80 0
SHORT OPEN Order Placed 16.40 15.00
SHOT 15.80 Order Placed 16.40 15.00

Weekly

Daily

Platinum Technical Outlook

Platinum followed the footstep in gold and silver but the pullback higher was another opportunity to add on short. The selloff has just begun and with our short positions at 1020 and 1005 respectively, we have now moved the stops to breakeven and let it run.

β€œWell short covering season run out of steam and the reversal should hold true given that the dollar strength starts to kick in again. Seasonality also shows that end of October and going into mid-November has not been a positive month. We envisage a pullback here before a potential Inverse Head and Shoulder move higher.”

Position Valid Date Price Action Stop Loss Target Results
Short 19th – 23rd 1020 Live 1040

Moved to B/E

975 changed to 930
Short 19th -23rd 1005 Live 1040 moved to B/E 975

Weekly

Daily

Palladium Technical Outlook

Daily chart shows a potential bull flag formation and should price action fail, then we can see deeper pullback. Meanwhile, we will hold to the one short position and moved stops lower to minimise risk. Palladium price action can be erratic and fundamentals reasoning could move market.

Position Valid Date Price Action Stop Loss Target Results
SHORT 695 Open 746 moved to B/E 600

Weekly

This article is written according to the author’s views and by no means indicates investment purpose. Opinions expressed at Sharps Pixley Ltd are those of the individual authors and do not necessarily represent the opinion of Sharps Pixley Ltd or its management, shareholders, affiliates and subsidiaries. Sharps Pixley Ltd has not verified the accuracy of any claim or statement made by any independent writer and is reserved as their own and Sharps Pixley Ltd is not accountable for their input. Any opinions, research, analysis, prices or other information contained on this website, by Sharps Pixley Ltd, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. Sharps Pixley Ltd will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. The data contained on this website is not necessarily real-time or accurate.

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