Week 23 8th Jun 2019: Global Macro, Gold, DJI, VIX, USD Index & Bond Yield update

It has been a while since we have last posted. As expected, Mr. Market continued to be volatile where tonnes of opportunities are available to everyone. Have you executed any good trades during this period? If so, do share in the comments for us to celebrate with you! 🙂

 

Quick round up of what has happened in the past few months,

  1. Trade war has escalated between China & US. Huawei somehow gotten herself into the middle of the “war”.
  2. Theresa May stepped down amid Brexit uncertainty
  3. Interest yield curve inverted further
  4. NFP disappointing figures of 75k jobs added (expected 185k)
  5. Trump has threatened tariffs to Mexico and withdrawn today due to a deal reached
  6. Instead of No Interest Rate increase, we can see that Market is now factoring a Rate reduction. This is a total change of tone from the start of 2019

Would you be interested to know how the above events have impacted Mr Market? In this week’s article, we have decided share our secrets in looking at the charts and how different charts can be correlated to each other. This would help you to differentiate which are “fake” noises and which are the “real deals”. Charts that are will be covering are: DJI, VIX, Gold, USD index, Bond Yield.

 

DJI & VIX

  1. DJI has formed a triple top and has performed a swing low of 24708 (great money for those whom have shorted). We can see that DJI is currently in corrective wave 4 of Elliot wave (resistance around 26270) and wave 5 (sell down) would be initiated should market fail to break up (good risk to reward here).
  2. To substantiate the above point, we can see from the Commitment of Traders (COT) report that institutional has increased their position on shorts and reduced the positions of long as compared to a week ago. This further strengthen the possibility for wave 5 could be executed.
  3. Besides looking at DJI chart and COT report, we have also noticed that VIX index have been trending upwards since May 2019 where it signifies increased fear in the market.
  4. Technical analysis on DJA chart
    1. Stochastic has reached a high level where we would expect it to come off in the upcoming week (only after it tests the 2 resistance levels as indicated)
    2. RSI, MACD continue to trend up but would be facing exhaustion soon

 

 

 

 

Gold & USD Index

Gold and USD Index are looking interesting. As mentioned in my post in Mar 19, gold is trending up and has kept breaking higher and higher (do read back all the past post and you will discover our strong hit rate on Gold).

From the current strong momentum of Gold, we would expect it to test the next resistance level of 1,370/Oz and thereafter?, the sky is the limit 🙂

 

In addition to buying Gold, we have also added positions on Gold mining companies such as CNMC Goldmine. Generally gold mining companies are having fixed overheads irrespective of the selling price of Gold. As such, we would expect at least a few fold PBT results from gold mining companies when Gold price increases.

This particular stock (CNMC Goldmine: 5TP:SGX) caught our attention as we can see from the latest quarterly results, the company has turn around successfully where the market have not price in the changes in fundamentals. This allow us to enter at a large margin of safety and sit firmly on the bull run. Below is the link of the article we have written on CNMC sometime back:

https://www.investwhizz.com/2018/06/24/update-on-cnmc-goldmine-5tp/ 

 

Technical Analysis of Gold & USD Index (DYX):

  1. Break out happened as seen from level of 1,272
  2. Gold’s strong momentum is mainly supported by the weakening USD
  3. DXY is now sitting on the base of 200 EMA, it would look very bearish once it is broken.
  4. It is very important to monitor DXY chart closely in the upcoming week

 

 

 

 

 

 

Bond Yield:

As mentioned above, we can see that there is a big inversion in Bond Yield curve.

Current status: Yields of US 3mths, 1Y, 2Y, 3Y, 5Y, 10Y treasury bond are all lower than 1M. Generally, we can see that such phenomenon suggest that market is heading towards a recession (i.e. Investors are switching their funds in buying LT bonds as they expect economy to be bad in the short term.

However, I can see that the situation this time is kind of different as the interest rate is very low at ~2%. At such low interest rate, I do not think that Market would be crashing in a big way.

The view would change suppose interest rate goes up to 4-5% range.

 

China’s leverage on trade war:

There have been many articles on how talks on how China can activate the button of selling US Treasuries. In fact, we can see that China has sold 20 Bn of US Treasuries in Mar 19.

Should China sell off the US 1 Trillion Treasuries, we believe the below may happen:

  1. Selling Treasuries would mean China would have a lot of USD.
  2. As they would not need all the USD, they would likely to dispose off the USD by buying other currencies such as JPY,AUD,EUR,GBP etc, or Gold, or something else
  3. In any case, the market would be flooded by more USD where it would push USD Index further down
  4. Commodities that are predominantly denominated in USD would appreciate
  5. Interest in US would rise due to the fall in price of US Treasuries due to the dumping
  6. Companies that are taking loan would face higher borrowing cost and that could result in global financial crisis.

(Sounds logical? Do comment as we would be keen and open for debate/discussion on this topic)

 

 

Hope the above analysis help to give you a better perspective of what is happening around the world. In many situations, we can see that different charts are actually correlated and it would make sense to see them together on a daily basis to have a better sense of what is happening.

 

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Cheers,

Ernest Koh

InvestWhizz Founder