Market Update 01. 03. 2021

Good morning everyone! Hope you all had an amazing weekend. Here is a quick read out on markets. Obviously we had a lot of action in bond this week and yields were flying higher and stocks were freaking out. So what does this all mean? What's the context of this all?

So let me give you a little perspective here. First obviously the action has been incredibly choppy in February. Quick snap selloffs the we had the program buying coming back. I mean the structures have been quite identical each day. A classic head and shoulders pattern kinda topping out and then we had closed the month with a massive selloff pointing out a long rejection on the monthly candle.

Obviously lots of two-way action and very tricky to navigate through from a trading perspective so what I wanted to do is kind of keep you abreast of some of the key things I've been pointing out in public in our market blog section on the website just kind of follow through up on those high level items if you want more details obviously we have market services and market videos where I go through the technical's in detail either weekly or on a daily basis so let's put this in perspective why did we close down on the month or not down for the month but at least had us another sell-off into the tail end of the month well it's one of the things I've been talking about the massive liquidity injections that we've had over the last year just propelled everything vertically higher.

This is the s&p 500 far outside the bollinger bands and that is just not a happy place to be if you want to be pressing long. Last year we saw that in previous occasions risk reward just shifts so basically we just had a reconnect with the upper monthly bollinger bands coming on oscillators obviously being very much to the extreme so from that perspective is really not a surprise that we had a bit of a pullback.

Out to similarities so it was fascinating to see right we had this end of January pullback. Then we've had new highs on negative divergences and now another pullback another crash unlikely at all but corrective risk remains in this market but again we need to put this all in context so i'm just highlighting for now this move into end of February here very similar to what we had at the end of January and that constructs somewhat similar but and this is very very important but the trend has not been broken in fact it's amazing how absolutely clean this is on the trend line and obviously last year we had a breakthrough and we don't have that yet. But just again highlighting the signals were lining very similar in this is the s&p 500 chart.

Nifty experienced a big selloff too and now possibly heading out to a lower support range as mentioned on the chart.

The beginning of the year an alternative view as key charts to watch one of which is the vix and I spoke about again this week. It's amazing considering all the new highs and the liquidity that's being thrown in and the growth that we're now getting from everything right from these liquidity injections that the vix remains above its February 2020 gap and I've been highlighting these structures that are taking a long time to build which is not unusual right when we saw this here in 2017 we saw this here these consolidation phases take a really long time and at some point they break to the upside obviously we had that here in historic form last year but again you know if you want to call it a falling wedge. Lower lows and lower highs but the structure remains and and of course if you look ultimately too for this to break higher i'm just noting for now that we've had a couple of volatility events so far in 2021 and so far the structure continues to hold.

Another chart I highlighted is the U.S. Dollar. It hasn't done very much as of late but it remains a threat because ultimately if you do get a massive spike in the dollar that could be incredibly negative for equities what we can observe is that this wedge pattern the dollar actually has broken out if you want to look at the last few weeks as kind of a back test you can see how well it respects this trend line and we haven't changed this trend-line in months it is definitely bouncing off there and we saw a little bit of that on this last week as well as equities came under pressure but nothing dramatic has happened yet on that. For that pattern to really kick in we would need to see a major move in the dollar.

The other one of course in the springs now is the bond freak out rather is the steeping

of the yield curve. The steepening seems normal this is what you would expect coming out of a recession what you wouldn't expect is new market highs and this is where central banks with all the liquidity injections and of course fiscal on top of that has completely you know put the rule book on its head right I mean typically when you see that steepening you're still kind of moving in the recession and they've turned everything upside down and I think that's now the unique challenge I think everybody is dealing with because we are at record high valuations we have the largest disconnect from the economy ever we have more massive chart disconnect and now we have all this optimism and so the question ultimately becomes when is too much because what we've seen this past year and we can't look at the last year in isolation we got to look at in context of the last 12 years of continued global central bank intervention the liquidity machine keeps running and it requires ever more and the question I ask you know what's the right amount because I don't see anyone asking that question.

I think the answer is nobody knows. What we do know is what central banks have done with not only bond buying and qe negative rates ultimately cumulatively they've completely historically distorted everything from money supply financing all this incredible debt that is being pushed out and so now the freak out is in regards to what if you're going to get some overheating of the economy so this is the problem when you do too much and then what killed the bull market at the beginning of or the end of 2018 was when a 10-year hit 3.2

percent remember this is actually a historically low number coming from a long long road of low highs and lower highs and back here it hit a trend line.

A 30 to 35-year trend line and this is when then the fed was forced to cut rates because markets dropped 20% so then higher yields which were presented as you know a sign of confidence and the economy growing on the heels of the tax cuts ''blah blah blah blah blah'' that was just all wrong the fact is that construct couldn't handle it and so now when you get the velocity of this move right when all sudden yields spike higher the concern is okay! What's that new level where we just can't handle it we don't know that yet. What was clear here in this form of technical perspective interesting I had pointed out this 38.25 zone it spiked above which is kind of what you see when you get stop losses and so forth so it's very notable in my mind that by the end of the week this was reversed right back below the fib right back below these 2019 lows so again markets are respecting technical's but they're also dealing with with key pivots.

Giving you example here is the s&p 500 weekly futures trend has held right i mean as long as this does not break we you can keep going higher right. Something like this breaks then of course you're gonna look it as corrective activities and those can be sizable considering just how steep and run up this market is at the same time you know you're looking at support you also look at resistance like the dow this is one of the charts i pointed out this week when it started hitting this trend line and that turned out to be a cell and these pivots work and that was a quick over a thousand point snap in the dow and our Indian markets but look also founded support at the 5th dma and this trend is not broken either so you know as long as the trends don't break and as long as central banks remain in control you got to be realistic that there is continued upside in the upside risk in these markets.

Also pointing out to the Nifty p/e chart which is highly over ended and has seem to have topped out near its historic high of 4th standard deviation. Markets have reached a point where it stresses out on the higher side which gives way to a harsh sell mode as experienced on Monday where we say a 900 odd point gap down and carried to slide lower to another 800 odd points.

If you really want to get all optimistic on all this you can make the case that this can keep running right I mean we have a really key trend line here and you can make the technical case for 4900 on the s&p 500 and this is where a lot of the wall street analyst sits so you. You know you can either go straight to higher trend line or you can have corrective activity and then a move higher we will have to see to be determined I mean obviously you know again stimulus this weekend announced will likely get passed in mid-march. G7 is going to keep fiscal stimulus going as well so that continues to be a risk factor until something breaks

That's why i'm saying keep watching the dollar keep watching the vix and keep watching what happens in yield. Notice on Friday when the tenure reversed who was showing relative strength all of a sudden. It was tech right, tech had actually corrected almost nine percent in from the February high so that was actually a sizable correction and if now yields reverse you can see tech obviously bouncing from those levels so that kind of keeps the trajectory going as I said as long as nothing is broken on the trend line. But if the dollar or yields or you name it the vix act in conjunction that puts that pressure bottle on so be aware as we saw this last week things can move.

If you assume and it's going back to this 4500 scenario here if you assume that central banks retain control then you can have a trend here something like mentioned above just keeps on going notice even in 2013 we had a corrective move into the end of February close to the 5ema and then it just kind of kept going and then you had all 50ema tags that were buys and then later on you had the 100ema tags that were buy so that's certainly something anyone needs to keep an eye on as well in terms of control my perspective YES! I guess I suppose as long as they remain in control it's all possible but be very aware of where the pressure points are if these markets crack and if we do get yield spikes that central banks cannot control because ultimately there is an organic market that exists and the distortions that we're seeing here on from a historical perspective are completely out sized what I will note.

My perspective remains this market isn't massively overvalued and distorted but we have to and this is why I was pointing out to technical pivots we have to be very flexible and attuned to where the resistance and support points are and just be as flexible navigating through this.

So I hope this was helpful, again if you haven't seen the articles you can go through them and kind of give you a more detailed perspective otherwise if you want a more daily view or more detailed view on the technical's you can join us on on that front but I think this was kind of the first warning shot here that the narratives of central banks are challenged and obviously we saw immediately intervention and job owning from central banks across the globe. This is going to continue to be a journey and I encourage you to keep watching these charts that are highlighted because I think they're key for 2021.

Anyway I hope you all have an amazing week ahead.

Take care! :)