With the U.S. earnings season upon us, it’s worth taking a look “under the hood” to see how lesser-known stocks have been doing lately. A quick way to do that is to look at the Russell 2000 which, while far from being a perfect indicator, can still give you valuable at-a-glance info regarding the health of the market. So what are small-caps telling us right now?
In one word: interesting… but let’s look at the chart in detail!
Continue readingDon’t get me wrong, today’s CPI reading was a crucial data point, but it’s just that, one data point. For short-term trading, it makes sense to focus on it but long-term, robust trends are what will drive returns in all asset classes.
From an investment standpoint, there are much “juicier” charts to look at, nine-month highs in Europe, improving breadth in the U.S., copper’s breakout, fresh rally high in the EUR/USD, the rally in travel stocks… you can choose your poison, there is plenty of action across markets.
What connects all of these is the improving outlook for global growth due to China’s reopening. That’s probably the most important new narrative of 2023, and while uncertainties abound, for now, the market seems to run with the idea.
The war-fueled rally in agro-commodities and energy is a thing of the past (and maybe the future…), with wheat, corn, and crude oil all trading at or below pre-war levels, but “Dr. Copper” just broke out to a seven-month high and never looked back.
Let’s see the chart!
Continue readingIt’s been a fun week in financial markets – unless you are long, that is – as investors tried to make sense of the virtually non-existent data concerning the new variant of the Virus, which led to a massive surge in volatility.
Oil, which has been a great indicator of sentiment ever since the start of the pandemic (remember the negative prices?), dropped nearly 25% in three weeks, so Mr. Market thinks that the outlook is not great. In fact, according to Goldman Sachs, the market is “pricing in” a total travel shutdown of three months, which seems a bit excessive.
Making things even more interesting, the OPEC will likely chime in today as well, and with last week’s skirmish regarding the Coordinated Global Reserve Release in mind, it would come as a surprise if the nice folks at the Cartel didn’t try to intervene, at least verbally.
A brief guide to the battered energy complex and the clues to look for before buying.
Oil has been even more important than usual in the past few months for financial markets. Slowing demand growth, rising U.S. production, and cyclical issues in emerging markets lead to a persistent supply glut (thanks to Saudi tactics at least in part) and pushed prices down by more than 70%.
The decline caused bankruptcy fears (not unfounded ones) concerning over-leveraged and borderline unsustainable producers with some analysts expecting as much as one-third of the O&G complex going bust.
After dipping below $30, for a 13-year low, WTI is possibly building a durable bottom amid the horrible sentiment. Recent news on the agreement between Saudi-Arabia and Russia on freezing production propelled oil higher and although it’s hard to imagine that these nations will keep their promises, this could be a good “excuse” for the market to stage a meaningful rally.
Yields of lower quality bonds (as seen above) in the sector skyrocketed with some contagion to other industries as well. Coupled with the global slowdown in economic growth (and the new Bail-in directive in Europe) banks and other financials also got sold as the exposures and the long-term consequences could jeopardize profitability in the highly leveraged financial system of the post-crisis era.
Common sense would tell us that falling oil prices are good for most of the economies and consumers. How come that it still can lead to a crisis in confidence worldwide?
Let’s take look at the most relevant effects of the slump: Continue reading
The most important currency pair might be getting ready to break lower from its bearish technical consolidation.
The Nature of Risk 