Market Update: March 2

EMERGING MARKET FLOWS / DEVELOPED MARKET FLOWS (BANK OF AMERICA)

Money has been pouring into emerging markets at a record pace.  Inflation trade…USD short trade…energy trade…etc…the same thing.  Extremes in positioning tend to occur at inflection points.  I have no issue with long EM several years (or more) out but all this money needs a test (same with USD shorts of course).  The monthly chart is below.  Notice the bearish monthly candles.  A drop back to 46 would be about a 20% drop from the high.  During the bull run into the October 2007 high, there was a 27% drop from the May 2006 high to the June 2006 low.  In other words, not unprecedented.

EEM MONTHLY

CRUDE OIL DAILY

Crude oil has come off the last 4 days in what I think is the beginning of a bigger drop.  The big test/breakdown level is 57.40 (see 4 hour chart below).  Mid-61.00s is proposed resistance now for those looking to position for downside.

2/21 – Crude made a weekly key reversal last week at a defined level (underside of the trendline off of the 2016 and 2018 lows).  This is also the level that provided resistance in 2015 before the plunge into the early 2016 low.  The trend in the inflation trade (basically USD down) is strong but crude could come off from the current level.

CRUDE OIL 4 HOUR

LIT MONTHLY

LIT is the lithium and battery tech ETF.  Lithium is critical to electric cars, which has been quite the narrative of late (TSLA for example) and a ‘frothy’ space to put it mildly.  As such, it’s interesting to see monthly volume reversals the last 2 months.  The previous 2 monthly reversals preceded weakness.  If one of the more speculative parts of the market displays warning signs, then perhaps several popular views (narratives) are about to be tested.  I’ve added LIT to the ‘all the same market’ chart below to highlight how everything since the March 2020 low is attributed to USD weakness.

BTCUSD, AUDUSD, EURUSD, QQQ, LIT DAILY

GBPUSD 4 HOUR

GBPUSD completed its 5 wave drop today and focus is on identifying the end of a 3 wave corrective bounce.  The ideal zone for the corrective top is 1.4050-1.4100.  A small pullback followed by a rally into that zone is what I’m looking for.

3/1 – I remain of the mind that Cable is headed towards 1.3730 or so but the path to get there might be choppy.  A drop under 1.3888 would make the decline from the high in 5 waves.  The implication then would be that GBPUSD bounces before realizing another down leg.  1.3830/40 is a possible support zone for GBPUSD now.  This is where proposed wave 5 would equal proposed wave 1 and is also the 2/17 and 2/18 lows.

AUDUSD 4 HOUR

.7800 didn’t do anything to deter AUDUSD so .7887 is back in focus for proposed resistance.  .7780s may provide near term support.

3/1 – The AUDUSD bounce may fail before the noted .7887.  .7800/15 is well-defined from where the rally would consist of 2 equal legs, highs in January and February, and the 38.2% retrace of the decline from the high.  It’s also VWAP from the high now (see below).  RBA is tonight and I’ll be on alert for a spike and failure into .7800/15.

NZDUSD 4 HOUR

Watch for NZDUSD resistance near the 61.8% retrace of the drop at .7367.  This is also the median line of the Schiff fork from the March 2020 low (the median line is also in line for AUDUSD resistance).  Ultimately, a downside level of interest in Kiwi is .7100.

2/25 – Data on New Zealand Dollar futures is limited but the only other volume reversal occurred near the 2019 low (beginning of a bottoming process).  I favor AUDUSD downside however given the topping prospects in AUDNZD.