The Week Ahead: Risk Is Off the Cliff; Unwind Has Begun

[Joanne98]

The Week Ahead updated January 29, 2010

· Risk is off the cliff and the unwind has just begun
· 4Q earnings better, not good enough
· US GDP in perspective
· EUR weakness not over yet
· Fundamentals still bearish for oil
· Cable, the path of least resistance
· Key data and events to watch next week
Risk is off the cliff and the unwind has just begun

Last week we expressed caution that the risk sell-off that has characterized the month of January was at a tipping point. That point has been broken to the downside and we are now expecting a further unwinding of long risk positions, which should see stocks, commodities and the JPY-crosses (EUR/JPY, AUD/JPY, etc) extend recent declines more aggressively. The USD is likely to be the primary beneficiary of a further risk sell-off, gaining ground on both better US data and on safe haven appeal as risk aversion increases.

The fundamental backdrop remains the same as over the past few weeks--China enacting measures to slow its economy, undermining global growth outlooks; reduced expectations over the strength of the global rebound; and heightened credit/fiscal concerns in Europe (Greece-more below), the UK, and elsewhere--but we think long-risk positioning is now likely to exert a stronger influence. Long positions in gold, oil and other commodities continue to dominate, and we have seen only small reductions in the face of recent weakness, suggesting the exodus is yet to come. Numerous stock market analysts are pointing to January as a bearish reversal month after a nine-month uptrend, and we would note that the S&P 500 closed just barely below its daily Ichimoku cloud at 1074.82. Gold prices managed to hang on above the weekly Kijun line at 1078.45, but the daily picture looks more ominous, with a downside crossover of the Tenkan below the Kijun with price below the cloud, constituting a strong sell signal. We prefer to sell bounces in the commodity space, rather than chasing this move lower.

In currencies, the JPY-crosses broke below recent range lows and appeared to be soundly rejected on several intra-day attempts to rally. EUR/USD extended losses and made a low so far around the 200-week mov. avg. at 1.3859. The weekly cloud is just below, with the top at 1.3775 and the base at 1.3620. USD/JPY failed to sustain gains above the daily Tenkan line at 90.51, but is still above the daily cloud between 89.38-88.57; a break below the cloud would trigger another wave lower in USD/JPY. Both Aussie and Kiwi have dropped below their daily clouds, with strong sell signals coming on the downside Tenkan/Kijun crossovers. (We highlight a short AUD/USD trade strategy in The Weekly Strategy.) As with commodities, we prefer to be sellers of JPY-crosses and EUR/USD, AUD/USD, NZD/USD, and GBP/USD on bounces rather than selling into a potentially over-sold, month-end distorted market. While the overall picture suggests 'risk-off' is likely to dominate further in the weeks ahead, we can't rule out a round of bargain hunting to start the new month, or some positive earnings surprises sparking a correction higher. But we'll be looking to exploit any such rebounds at technical levels highlighted in our Daily Technical Analysis.

4Q earnings better, not good enough

Continued>>>
http://seekingalpha.com/article/185662-the-week-ahead-risk-is-off-the-cliff-unwind-has-begun

[hedgehog]

1. "risk is off the cliff" Ummm, is that a good thing or a bad thing?

Really, I have no idea what the jargon means!

:blush:

[xchrom]

2. I know. What you mean -- why did he have to

Be so 'colouful'?

[Po_d Mainiac]

3. SIGTARP's latest report: ..A quote from the suummary

Stated another way, even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.

[hedgehog]

5. What do you know! I do understand economics, because

I was thinking the same thing!

[Joanne98]

4. Bad thing