Brilliant Winter Blooming Bulbs, Autumn, 1895
In this issue:
A perfect bounce?
Potential Gold long
The regular October warning…
Risk Index
Under 50 = accumulate, over 70 = defensive, over 90 = distribute
The Risk Index is a combined read of the trends of 68 intermarket spreads and indicators, from credit spreads in the US to car sales in Spain.
Aside from any potential October outlier (October likes ‘em), it looks like we get some general upward momentum for Q4 as per usual seasonals, but the market isn’t giving any ‘brand new bull market’ signals.
Any key inputs?
Wed: FOMC minutes
Thurs: US CPI
If there's any retracement of the bounce from last week, CPI may present another opportunity to get long, with the expectation that we’re heading into seasonal strength after early October weakness.
Support for the bounce
Before heading through the below, let’s mention the theme of Autumn at Risk Index: October likes volatility. Yes, we’re at a nice spot to try some tactical longs. But if we’re sitting 10% lower on the S&P by midweek, that’s just par for the course (and we should yet again be looking for longs there, enjoying the fact we put tight stops on our earlier trades…).
The S&P pinged off the key breakdown (and then break-up) level last week:
S&P weekly, that heavy blue line that was poppped in last year and has been pivotal to price action for 12+ months.
It was a ‘light touch’ and didn’t get into the woods of the key MAs nestled below. That often means the first bounce - this one - doesn’t last. But bullish seasonals could get us through to next year.
Given the squeeze on liquidity that high interest rates are bringing in, and the lack of attractiveness that the equity market has given bond yields, any bounce in risk needs all the help it can get. USD taking its foot off the gas is such a helping hand, and there was a nice reversal there last week as well:
DXY weekly - a little test part September highs and a swift reversal.
It’s the time of year that we start thinking about how the charts are going to end up by Jan 1st. I wonder if DXY will make it back to the 2022 close over the next few months, meaning that in a year where so much was expected to happen, DXY is unchanged.
CADUSD daily: one of the FX charts reversing bang on longer term support. A bit of volume coming in too.
I’m still wary of an all-out long in equities as it’s the obvious seasonal trade and there has been no hard test lower (yet). Though I do wonder if the reason that seasonals work is that many think it’s ‘too obvious'—surely there must always be a complicated reason for price to do what it does!
So, I quite like long gold. Gold should go up if USD is weak, or if equities are weak (unless there is extreme weakness). There’s also some expectation that inflation has topped (for now) and that will help gold too. It feels like a trade that has enough going for it that some of those calls can be wrong, but the trade may still work out.
Playing the 1800-1900 range looks like a decent move into year-end.
A note on oil
Oil made a picture-perfect reversal a few weeks ago, but has fallen hard, including one ~6% down day, and is now hitting against potential support. It could easily fall another 10%, with $75 being a more natural spot for year-end, but the easy trade is done.
Light crude oil futures, daily chart.
Quote to Self
As the nights draw in and we Scots increasingly retreat indoors and seek shelter from the weather (and everything else), I find it important to make every effort to keep motivation high.
"It had long since come to my attention that people of accomplishment rarely sat back and let things happen to them. They went out and happened to things."
~ Leonardo da Vinci ~
Have a great week.