RBS : China Commodity and Equity Price Trends

From RBS Research / Greg Gibbs

Can S&P remain divergent from everything else?

SP500 : Range Top ?

• On both the daily and weekly charts, it does look rather like a near term top has been reached.
• A print below 1191 would seal the move towards the lower end of the trading band.
• At this point in time, it is probably too early to talk about big trend down moves. But certainly worth making a trading range kind of trade here eg sell 1210 for 1120 stop > 1240.

SP500 : Conviction A Pre-Requisite

• As always, just when the technicals appear to have everything going for it, market makes a sudden sharp squeeze against the obvious (shorts). [DJI +apx 360 points, SP500 +4.1% in last hour of trading].
• Weekly and daily candles have appearance of false downside breaks. Further upside possible.
• Which is why it is important to take profits regularly and vary size of positions, so as not to be shaken out under such circumstances.
• Overall, for me the charts contain too much overhead resistance and this bear squeeze is doomed to fail. Had been lightening up (Copper, Ten Years, CAD) the past 2 days. Now running about 50% of peak risk, so let the squeeze begin. In due course, I want to be back to 100% Risk Off.
• Meanwhile, am braced for the onslaught. 
• Reminding myself of how difficult the long USD/CAD trade was at the 0.99 level. Maybe this short SP500 trade at 1100 will turn out to be just as rough. Much conviction needed to make it work. Thus, as always, emphasis is on control of trade size to remain in the game.

SP500 : Triangle Breakout

• SP500 weekly chart breaking out of triangle on the downside again. (as usual, need weekend close to confirm).
• Have re-established the portion of my ESZ1 short that I squared last Friday night at 1126. New trade made at 1101.
• Reminder - triangle downside objective at 996.

SSEC : Watch 2320

• Shanghai composite chart included here due to relevance to AUD + Copper.
• Monthly : Downtrend. Triangle consolidation since the bottom in Oct08. We broke out of the triangle in Sep and looks like we will almost certainly close a 2nd consecutive month below the triangle breakout point. Next up is key support level at 2320. Right now trading at 2392. A close below 2320 (only 3% away) would be ugly.

Nikkei 225 : Short SSIZ1 @ 8350

• Monthly : Breaking triangle downside support at 8530. Technical target is some 3750 points away (at 4775!). Hard to picture but will go with the break for now.
• Trade : Sold a bit late at 8350. But only noticed the break just now. Given that I am already heavily betting on Risk Off, this Nikkei trade will be 1-bullet 1-off. Cut if we fail to close this month below 8530.
• Comparing monthly charts only, this is technically a better trade than shorting SP500.

Sing Stocks : "One of these Things Is Not Like the Others"

• Have not traded cash equities for a few years now. Happened to chance upon this old chart montage of some Sing stocks I used to follow. Spot the odd man out.
• Starhub (bottom right corner) sticks out like a sore thumb. Must be one of the rare stocks in the market having an up quarter.
• Done a very cursory investigation - dividend yield of 7% probably explains the strong performance. Kim Eng Securities says "sustainable dividend policy supported by free cash flow generation" with E 4Q11 FCF @ 8.2 cents vs E quarterly dividends of 5 cents per share. In this low interest rate environment, I guess Starhub makes a good alternative to near zero yielding bank deposits. Almost like a high yield fixed income perpetual bond.
• Maybe not over-paying for EPL screening rights has also helped.
• So question is .. if stocks sell off large and I want to put some cash to work, do I buy something that is off sharply, or buy Starhub with its relatively superior chart technicals?

SP500 : Crucial Day

• Major weakness pre-US market open. ESZ1 @ 1128, where I have triggered half of my intended pyramid sell stop-in.
• ESZ1 trades about 7-8 points under cash. At 1128 now, futures are calling for cash open around 1136.
• Monthly : Middle of fresh down leg. Uptrend over.
• Weekly : Triangle base support line at 1145 ie futures pricing downside break already.
• Daily : Recent low at 1136 from where we bounced to 1220.
• If we close tonight below 1136, I will put on the balance of my intended increased position.
• Shaping up to be a blood-bath day. Let's see if the close confirms.
• [The core book table now shows relative risk taken by font size].

SP500 : Added to Short at 1146

• Increased short position today at 1146 by tiny just now. Average in price now at 1191.
• Monthly : UpTL broken. Expect test of recent low at 1102 at a minimum.
• Weekly : SHS NL re-test over (and failed to be even close). Either in some kind of 4th wave triangle now or end of 4th wave already.
• Daily : Bear flag. Break of 1143 at today's close is new short term sell signal. Will make today's additional short position more significant in size if it happens.

SP500 : Timing the Turn (Trying!)

• Monthly and Weekly charts indicate current rally is a retracement of the over-riding downtrend.
• Daily : Big bear flag. Yesterday's price action is first indication of a possible turn back down for trend resumption.
• Trade : Short ESZ1 at cash equivalent average price of 1208.

SP500 : Initiated Short

• Monthly : Uptrend line broken = sell rallies.
• Weekly : SHS top = trend reversal = sell rallies.
• Daily : In triangle consolidation. Currently near to upper edge. Sell small here. Sell more when it breaks lower edge (below 1130).
• Trade : Initiated short at market today (ESZ1 @ 1172). Add via sell stop-in below 1130.

S&P500 : The Big Call

• Current weekly chart formation is a replay of Jul07-Jan08 = SHS top. Back then, the trade worked beautifully. After the neckline break there was a pullback all the way towards 1440 for the perfect trade setup, for a subsequent 10-month bear that took us all the way down to 667.
• The equivalent chart-point this time is at 1265.
• Yes, the original SHS top objective this time round at 1146 has been met and exceeded. But for the new short trade, I am looking at a new downtrend, as opposed to just a short term top to be followed by uptrend resumption.
• Too early to discuss downside objective. Immediate priority is timing and pyramiding correctly into a short position in a low risk high reward location.
• This represents a major shift in my thinking that is going to affect my stance on all the other markets too.

S&P500 : Large Weekly SHS Top

• In process of forming very big SHS top now. Widely watched by media so expect this to be a difficult trade with lots of surprises along the way. Expect pain. Do in very small size until it works. Allow plenty of to-ing and fro-ing between the neckline at 1263.
• Potential size of downmove is 117 points (1371-1254). From NL at 1263, downside objective is thus at 1146.
• Initiated short ES this morning at 1259, in tiny. Scale up selling but pre-set limit on maximum size while it dithers.

S&P500 : Weekly SHS Looking Unlikely

• Had been previously mindful of possibility of the weekly chart forming a SHS top with right shoulder at 1344. This latest bout of strength makes that scenario less likely now.
• Monthly : Strong uptrend, even through the selloff to 1258.
• Weekly : as above.
• Risk On. Look out for new highs above 1371. 
• Nothing in this directly, but positioned Risk On elsewhere.

S&P500 : Upside Breakout

• Above 1344 = new high since Fukushima induced retracement.
• Bullish now on all 3 time-frames.
• Initiated small long ESM1 at 1346.
• David Rosenberg finally giving up bearish stance (= housewife wave?). Will have to be a bit careful with this position (small size, less generous stop loss). 

S&P500 and Simsci : Cut Loss

• Disastrous hedges (shorting equities) put on in the past week. Whilst hedge size was only 50% of Core Book risk, the loss on the hedges slightly exceeded the profits on the core positions. Thank God for the elephant EDM1/Z1 position which helped tremendously to mitigate.
• Just cut ESM1 @ 1309.50 and SSGH1 at 364.10. Really should have done it last night when I had that uncomfortable feeling in my gut.
• Probably the wrong time to cut Simsci, seeing as it is running into overhead resistance near to the old double top neckline, but I am not going to chance it and risk suffering more hedge losses.
• S&P looks like its going to put on a weekly reversal. Amazing resilience even in face of Fukushima upgrade to level 6 (3 Mile only level 5). This thing (S&P) just refuses to die.
• Got this one badly wrong.

S&P500 : Sold ESM1 @ 1278.0

• As per Simsci post earlier today, shorting equities seem to be a good hedge for rest of "No Deflation" Core Book.
• Splitting my hedge between Simsci and S&P500, although the technicals for the latter are not as negative as the former.
• Limit sell order for ESM1 at 1278 filled.
• Possible that the recent down move has been too deep to cling onto the long term uptrend view. I am undecided here.

Simsci : Disconcerting

• Disappointed by the lack of a bigger bounce in Simsci post-G7 intervention.
• Core book is heavily skewed to the No Deflation camp. Negative technicals for Simsci charts make this a good hedge for the book.
• Monthly : Rising wedge = very bearish.
• Weekly : Double top downside objective exceeded = down move going to extend.
• Trade : Just sold some SSGH1 @ 347.70. For now, am hoping this goes against me so I can build up the short.

Nikkei : P&L Nuclear Meltdown

• Suffered my biggest 1 day loss ever on a single trade.
• Paid heavily for going against charts. Weekly and daily were ugly when I went long yesterday. Thought I was doing my tiny bit to give moral support to suffering Japan. How frivolous.
• Never again will I make such a trade based on sentimental reasons. Never over-ride charts for whatever reason.

Nikkei : Tragedy

• Tragic. My heart goes out to my Japanese friends. Be strong, stay safe. You shall overcome.
• On monthly chart, long term support at around 9390. We may not even get that far down.
• Weekly and daily charts look ugly but I only want to wait and do the re-building trade. I certainly do not want to position for or profit from the misfortune of others.
• My bids are in.