Weekly Fundamentals - 27 May 2016

 
THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR
 
 
In conclusion to our report last week we wrote:
"COT findings served us beautifully last week.
We concentrate on extremes. Extremes in sentiment, COT data and the behaviour of corporate insiders.
We find that when all three are aligned then the fund management community, hedge funds and retail traders are on the other side of the trade.
This is very much the case we find today.
Everyone is bearish the USD, everyone is bearish risk and everyone is bullish the precious metals.
We are not. We are on the other side of all these extremes.
 
Therefore our recommendations for next week are:
Buy risk
Buy copper
Sell crude oil
Stay short the precious metals
Stay wary of GBP volatility but err on the side of bullishness"
 
Now let's see how we fared on our recommendations:
Buying risk was absolutely correct
Buying copper was also absolutely correct
Selling crude was wrong but only marginally
Staying short the precious metals was 100% vindicated
Be wary of GBP volatility ahead of the referendum but erring on the side of bullishness was a good call
 
A very good week.
 
A very busy week ahead in terms of data culminating in the NonFarm Payroll number and Unemployment Rate on Friday.
Also of importance is the all day OPEC meeting on Thursday. This will have a direct bearing on the both the oil backed currencies as well as the oil importing nations. Oil shares constitute a large percentage of indices in The USA, Canada and The UK and will therefore have a direct bearing on how risk performs this week.
 
Importantly will COT data begin to signal a change in our outlook?
 
USD: The US$ Index closed higher over the week.
A busy week culminating in the employment figures on Friday.
On Tuesday we have Consumer Confidence expected to rise from 94.2 to 96.1
Wednesday sees the release of Manufacturing PMI expected to fall marginally from 50.8 to 50.6
On Thursday we have the usual Unemployment Claims figure estimated at 271,000 from the previous 268,000 and Crude Oil Inventories.
Friday is the big day when we have Average Hourly earnings thought to fall from 0.3% to 0.2%, NonFarm Employment expected to remain at 160,000 and the Unemployment Rate estimated to fall slightly from 5.0% to 4.9%.
COT data shows that large commercials very slightly increased their net short position in the US$ Index from -15,383 to -16,147. This continues to be close to a 52 week rolling extreme. We therefore remain VERY BULLISH.
 
EURO: The EURO fell sharply against the USD last week.
There are only two items for the Euro this week both on Thursday.
We start with the Minimum Bid Rate which is the rate on the main refinancing operations that provide the bulk of liquidity to the banking system and is expected to remain at 0.00%.
This is followed by the ECB Press Conference.
COT data for the Euro shows that large commercials increased their net long position from +34,116 to +48,501. We therefore alter our view slightly from BEARISH to SLIGHTLY BEARISH.
 
GBP: The GBP rose against the USD last week.
Three items for the GBP, all PMI related.
On Wednesday we have manufacturing PMI expected to rise marginally from 49.2 to 49.6 indicating that manufacturing is still in a slowdown.
On Thursday we have Construction PMI anticipated to rise very marginally from 52 to 52.1.
Finally on Friday Services PMI expected unchanged at 52.3.
COT shows that large commercials decreased their net long position from +60,935 to +54,031. We therefore alter our view from BULLISH back to SLIGHTLY BULLISH.
 
YEN: The YEN fell marginally against the USD last week.
There are two newsworthy items for the YEN this week.
On Sunday we have Retail sales expected to continue to decline from -1.0% to -1.2%.
On Monday we have Household Spending thought to make a substantial improvement from -5.3% to -1.0%.
COT data shows that large commercials substantially decreased their net short position from -62,439 to -23,035. We therefore alter our view from VERY BEARISH to NEUTRAL.
 
AUD: The AUD fell slightly against the USD last week.
On Monday we have Building Approvals expected to fall substantially from 3.7% to -2.8%.
On Wednesday we have both Retail sales thought to fall marginally from 0.4% to 0.3% and the Trade balance number expected to show an improvement from -2.16B to -2.11B.
COT data shows that large commercials substantially decreased their net short position for the second substantial week reduction from -26,088 to -805. This is the fourth week in a row that they have done so. We therefore alter our view from BEARISH to NEUTRAL.
 
CNY: Only one item for the CNY this week which is Manufacturing PMI on Tuesday anticipated at 50.0 from last month's 50.1.
There is no COT data for the CNY.
 
COT data of note on products we regularly comment on in our DAILY REPORTS and WEEKLY BONUS VIDEOS and for those products which show large commercials with extreme net positions.
 
S&P500: Large commercials massively decreased their huge net long position from +100,453 and are now net short at -11,974. We therefore alter our view meaningfully from BULLISH to BEARISH.
GOLD: Large commercials substantially decreased their net short position from -290,243 to -225,213 last week. Now that large commercials hold a net short position which is greater than 100,000 we are bearish but it is no longer near the 300,000 mark. We have therefore to alter our view from SUPER BEARISH to BEARISH.
SILVER: Large commercials decreased their net short position from -89,895 to -78,293. We therefore alter our view from SUPER BEARISH to VERY BEARISH.
 
The gold:silver ratio widened from 75.87 to 74.86 indicating silver outperformance last week.
 
COPPER: Copper is an important metal as it is a leading indicator for many commodities. Large commercials increased their net long from +29,943 to +41,785 last week. Large commercials generally carry a net neutral position. This therefore remains an interesting situation on the long side so we remain BULLISH.
US 30 YEAR BOND: Large commercials increased their net short position from -72,854 to -84,749 last week. We therefore remain BEARISH.
CRUDE OIL: Large commercials very slightly decreased their net short position from -351,429 to -341,742 last week. This is very close to a 52 week extreme and we therefore remain BEARISH.
CAN$: Large commercials decreased their net short position from -33,527 to -25,595 last week. We therefore alter our view from SUPER BEARISH to BEARISH.
NZD: Large commercials decreased their net short from -6,825 to -4,184 last week. We therefore remain BEARISH.
NASDAQ100: Large commercials substantially decreased their net long position from +13,810 and are now net short -27,499. We therefore alter our view from BULLISH to BEARISH.
RUSSELL2000: Large commercials decreased their net long position from +49,160 to 25,000. We therefore alter our view from SLIGHTLY BULLISH to NEUTRAL.

THOUGHTS FOR NEXT WEEK
The last few weeks have been kind to us.
Our longstanding view that the USD was a good buy and therefore risk would also catch a bid whilst bonds and commodities in the form of precious metals would not has been substantiated.
However all good trends similarly to all good things come to an end. The question is when is that?
Last week we began to get the feeling that we were approaching the change as the velocity of large commercial changes begun to wane. This week a number have actually made substansive u-turns.
Witness net shorts in the SP500 and the NASDAQ100 for the first time in a while. Witness also fairly major reductions in net shorts for both gold and silver as well as the commodity currencies.
The YEN also had a good week. This is a good bellweather for risk for where the YEN goes, risk heads in the other direction.
Transitions in trends are always difficult to call and can therefore be costly. However the more the risk the better the reward. Our recommendations this week are therefore not for the faint hearted.
 
Our recommendations for next week are therefore:
Take all profits on risk
Begin taking profits on precious metal short positions
Begin buying very slowly the AUD and NZD
Stay wary of the GBP
Short crude
 
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