Is It Time To Buy South Africa For A Trade?

From the desk of Tom Bruni @brunicharting


South Africa ETF To Rally 25%?

With global equity markets looking poised for a tactical bounce in the week(s) ahead, one market in particular looks ripe for a potential squeeze higher.

South Africa has been in a strong downtrend since breaking down from a symmetrical triangle late last August. Selling quickly accelerated after a major support level near 51-52 broke shortly after the breakdown from, and retest of, the symmetrical triangle. Last week prices traded through another major support level near 40 and swiftly reversed to close the week back above it while momentum diverged positively.

Although the main structural downside target lies near 32, current conditions suggest a counter-trend rally may be in the cards. As long as this failed breakdown holds, prices look like they could retest the broken support level near 51, which also corresponds with the 38.2% retracement of the 2015-2016 decline and the downtrend line from the 2015 highs.

eza bruni 1

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Time To Fade The Natural Gas Rally?

From the desk of Tom Bruni @brunicharting


Potentially Time To Fade The Natural Gas Rally

With Natural Gas futures up roughly 48% since the December lows, the urge to call a bottom in this asset class is quite strong. However, history tells us that the most vicious rallies occur during bear markets, which may suggest that current levels offer a decent risk/reward on the short side.

Before taking a look at price, it’s important to be aware of current sentiment and seasonality data within its proper historical context. In terms of sentiment, the recent rally has allowed a number of things to occur.

  1. Commercial hedger net long positions are slowly backing off all-time highs.
  2. Public sentiment moved from multi-year levels of pessimism to the a more neutral reading and the most optimistic since late 2014.
  3. Momentum as measured by a 14 period RSI across multiple time frames has reset from deeply oversold to a more neutral reading.

In addition to that, seasonality data from the past thirty years suggests that Natural Gas tends to struggle in the early months of the year, with average returns of -5.7% and -0.2% in January and February, respectively.

There was no doubt that sentiment was stretched to extreme levels late last year, but the recent rally allowed sentiment and momentum to come back toward more neutral territory; possibly setting up for another leg lower.

In terms of price, structurally Natural Gas remains in a downtrend. After a failed breakdown below the 2012 lows sparked a vicious rally December into January, prices are back at overhead supply and potentially putting in a failed breakout above the downtrend line from the late 2014 highs. Momentum did not put in a bullish divergence at the recent lows and remains in a bearish range.

1-12-16 ng bruni

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Twitter (TWTR) Hits New Lows: Stock Oversold But Heavy

Shares of Twitter (TWTR) broke the $20 level on the downside and declined as low as 19.60 before recovering some of the day’s losses.  The move brought TWTR stock to new 52 week lows and continues its recent slide.

Below is an updated stock chart for Twitter (TWTR) as well as a few bullet points based on what I’m seeing across time-frames.

Currently the TWTR stock decline is taking a pause at the 161.8% Fibonacci extension of the October 2015 rally. The stock is oversold but this appears to be short-term. Either way, it may lend a hand to a bounce.

On a macro level, Twitter stock price remains in a downtrend and below the 200 period moving average on all the major time-frames.

The structural target on the weekly chart remains $13.15 based on the 161.8% Fibonacci extension of the April – July 2014 rally (not pictured).

As of now, momentum remains in a bearish range and a lacks any signs of a positive divergence on the weekly, daily, or 65 minute charts.

The stock could bounce in the very short-term, but there is not any evidence to suggest a longer-term bottom is near. Overall the weight of evidence continues to suggest fading strength toward resistance near $22.00 and 23.50, as shown by arrows on the daily TWTR stock chart.

Twitter Stock Chart (TWTR) – Daily Bars

twtr stock price support levels twitter chart january 8

Thanks for reading.

The author does not have a position in any of mentioned securities at the time of publication.  Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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This post originally appeared on on 01/08/2016. 

Non-Correlated Short Setup In Live Cattle

Non-Correlated Short Setup In Live Cattle

With every global equity market down to start 2016 and media outlets declaring “Markets In Turmoil”, it can seem like there are no opportunities to make money in this environment. While it may be true that it’s difficult to press shorts while stocks are extended in the short-term, and even more difficult to try to make money on the long side until global markets stabilize for a few days, as market participants we can look at all liquid asset classes around the globe for opportunity.

With that being said, Live Cattle Futures are a non-correlated asset that look interesting on the short side.

From an structural perspective, Live Cattle Futures broke their uptrend line from the 2009 lows in July, retested that level in August, and have been falling ever since. This market became extended to the downside in the short-term late last year and experienced some mean reversion, but have since run into the downtrend line from the June lows, as well as prior support / resistance from the 2012 highs and 2014 lows. With momentum in a bearish range and the 200 week moving average beginning to roll over, the weight of evidence continues to suggest this is a market we want to be fading on strength.

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9 Market Themes To Watch Heading Into 2016

First of all, I want to say that the purpose of this post is not to make predictions about the future, so if you’re expecting a 12-month price target for the S&P 500, you’ll want to look elsewhere.

Throughout this exercise I used the weight of evidence present in markets around the globe in order to identify some market themes that I think will occur throughout 2016. Lastly, I want to say that none of these market themes are set in stone. As a market participant, I’m not here to be right/wrong, if/when the weight of evidence changes I’ll adjust.

Without further adieu, here are the nine market themes for 2016.

1.   Developed > Emerging Markets

Since the SPY / EEM and VEA / VWO ratios bottomed in 2011, they’ve been on a complete tear, representing the broad outperformance of stocks in developed markets over emerging markets. These ratios developed multi-year bases and the breakouts from them were quite explosive. Despite their aggressive rallies, there is little evidence that suggests they’re ending anytime soon. There is evidence however, that their progress may be due for a bit of a pause in 2016.

The SPY / EEM ratio is approaching the 38.2% retracement of the 2000-2010 decline, which also corresponds with prior support near 6.7. In addition, momentum has negatively diverged at the recent highs, which has preceded pullbacks or consolidation periods in the past. Structurally this uptrend looks great, but we may see some consolidation this year before it breaks out to new highs.

spy eem ratio relative performance chart 20 years_2016 market themes

Similar action is occuring in VEA / VWO as it approaches the highs it made in 2008. Despite the strong structural uptrend, momentum recently diverged as the ratio made new highs, suggesting a pause may be needed. Our structural target remains the 2008 highs, which also corresponds with the 161.8% extension of the 2014 correction. Despite this continued outperformance, I’d expect to see some consolidation in this ratio before it makes new highs.

developed markets outperforming emerging markets chart_2016 market themes

2.   Large-Caps To Outperform

Over the past decade or so, the ratio of large caps stocks to small caps stocks (SPY / IWM), has been forming a major base and is starting to break out of it. If the ratio can clear 1.80, then 1.95 is the next big level of resistance. If this ratio can eventually get above 1.95 there is room for a lot of potential upside. I’m going to continue to watch this chart throughout the year as I think this may be the start of a much larger / longer-term trend. And this could be one of the major market themes for this year and perhaps years to come.

spy iwm large caps outperformance chart_2016 market themes

3.   Commodities As a Group Will Continue To Slump

This doesn’t necessarily mean another big down year for the group, it could very well mean a flat year. Many of these markets in strong structural downtrends or trendless markets, meaning that time will be needed for them to reverse / sustainable uptrends to develop. That doesn’t mean that there won’t be counter-trend / mean reversion opportunities to take advantage of over the year, but it does mean that we shouldn’t be expecting strong multi-year downtrends to reverse themselves in a relatively short period. Time heals all wounds, even in markets, but we have to be patient to allow sustainable trend reversals to take place.

A good example of this is Crude Oil. Many commodity charts have been more or less crashing below downward sloping 200 day moving averages for years. Sure, some counter-trend opportunities presented themselves in 2015, but the structural trend is still in place and will take weeks / months / years for these trends to change.

crude oil daily chart downtrend in motion january 2016 Continue reading