• Comments for February 7, 2018

    The big news of yesterday is not really the technical bounce, but it is the fact that the 20DMF pushed into oversold territory for the first time since January 2016. This tells us how relentless the buying had been for the past two years. This also tells us that this period is probably over for now. If you combine this situation to the very swift volatility spike and its consequence on funds that used to sell volatility, then I might not be surprised to see funds being more cautious on the long side.





    In the past, when the 20DMF turned into oversold, it would go deeper into oversold before even issuing a buy signal. Hence, I used to advise staying short when in oversold territory, until a buy signal was issued.

    However, yesterday I did buy QLD and CREE.

    QLD because the NQ8 looked ready to push higher and was displaying a positive Money Flow.



    You will note in the Figure below that the NQF was displaying positive divergences early in the day, indicating that algos were buying weakness.



    The same pattern could also be observed on the small caps. This does not say that such a pattern will continue today, but buying early when the pattern is detected offers a good cushion if ever the market reverses back down.



    I bought CREE because the EV pattern looks very strong compared to other stocks. There might be something special going on for that company. It might be better to buy June calls in order to let the company CEO develop its new strategy.



    On the currencies front, we cannot detect a strong US$/Euro. The trend seems to be going into that direction, but it is certainly not strong.





    The Yen pattern however tells a different story: a market bounce that is not accompanied by a weak Yen tells us that the carry trade reversal might still have legs, which implies some market bearishness continuation.



    On the fixed income front, we can see below that Treasuries reversed down, but are not under heavy selling pressure. Rates might have become attractive again here, at least compared to equities dividends.



    Note below that among defensive sectors, REITs look more interesting than utilities.






    Conclusions:

    I believe that after the rush back into equities yesterday, the market will be much less directional today. I would however maybe start looking at buying some REITs.