In this briefing:
- Global Equity Strategy: Initial Low Established
- US Market Improvements as SPX Bull Wedge Gears Up for a Rally
- Keppel Corp Tactical Buy Level with Macro Heavy Cycle
- EEM Coiled for a Rally as USD Rise Exhausts
- Where We Are Buying the SPX
Several equity indexes and indicators we watch are telling us an initial primary low has been established for global equities (ACWI-US). At the same time, after this type of major waterfall decline there is often a test of this initial low – and oftentimes we get an undercut of the initial low. Barring approval of a first-line therapy for COVID-19 we are of the belief that we will get an eventual test of this initial low and potentially an undercut. In this report we highlight key technical levels and indicators to watch and suggest investment opportunities with defensive and/or growth characteristics. We are also expanding our recommendations to include bottom-up ideas within several other Sectors.
The descending wedge in the SPX has a 70% probability of breaking higher and with noted bull divergence in yesterday’s update those odds increase to 82%. The bull wedge remains our focus to buy below 2,191 and near ideal support at 2,150 as outlined yesterday with noise allowed to 2,130.
The following charts outline key areas of market internal improvement that at least set up for a tactical rise in April as stimulus measures begin to work into market sentiment amid incredibly oversold levels. Passing of the stimulus bill work most likely be the catalyst to trigger a short squeeze of 15-20%.
Key relative upturns in downside leaders are noted (transports and small caps) and a must for a viable SPX low. Relative bull turns are flagged in airlines, CCL, SOX, tech and EEM (smelling out a USD peak). Breadth has met key exhaustive lows with stocks trade above their 50 and 200 day moving averages near or at 0.
The bond market is seeing signs of normalization as corporate debt (LQD) is coming off key lows but still has ripples to deal with in April.
Keppel Corp Ltd (KEP SP) is approaching tactical price support at 4.60 where a recovery attempt is expected but unless Keppel can clear 6.0 the macro bear cycle will resume course in coming months/into the summer.
Weekly MACD triangulation (like many assets in Asia) is breaking down and needs a price push back above 6.0 and then 7.0 to avert a harder bear cycle into the summer. A tactical rally fits with our cycle low for Asia equities in late March/early April for an April counter trend rise that fizzles out in May.
We outline a tactical bounce trade and reverse to macro short for a new low in the summer with stop and price target levels. This fits our Asia cycle for a low in late March, April rally into early May and resumption of the bear cycle by mid-May.
iShares MSCI Emerging Markets (EEM US) has been a good bear bet. We are now seeing constructive signs for a low taking shape this week ahead of our key late March cycle timeline for global equities to bottom. After meeting targeted support at 30.50 we do see risk down to 28. It is the bullish RSI wedge that is screaming for a low and April power rally as the contracting pattern matures late this week (with noise into early April) and set for a powerful upside breakout.
We pounded the table regarding buying the USD in January with EM FX showing major breakout energy which has transpired nicely from the USD/BRL to the EM FX complex and then bled into Asian FX. We now see signs of the USD rise exhausting in late March.
A low this week should induce a rise of 17% to 21% given EEM targets of 35 and 37. Risk lies with the COVID overhang muting a rally to the tune of 10-15%.
S&P 500 (SPX INDEX) has broken important long term trendline support and will act as ressitance in the touted April rally. We have been shorting bounces from SPX 3,380 and now looking for some downside exhaustion to place some long bets (NDX, SOX, EEM and Asia favored) for a short squeeze rip higher in April. Worth noting that virus battered sectors (airlines and cruise lines) did NOT make new lows Friday with some light at the end of the tunnel. SOX is also making a stand to perform over the NDX which faces late cycle big tech downside capitulation selling that would help identify a key low near SPX macro support at 2,150/30. A USD cycle peak is also a key component in chiseling out key lows in Asia and EEM.
Choppy descending ranges and RSI bull divergence into a cycle low timeline in late March are conviction inputs as is the overdone USD rise.
You are currently reading Executive Summaries of Smartkarma Insights.
Want to read on? Explore our tailored Smartkarma Solutions.