Weekly Fundamentals - 11 June 2016

 
THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR
 
 
In conclusion to our report last week we wrote:
"The last few weeks continue being kind to us.
As stated last week spotting the change in a trend is never easy and can therefore prove to be costly.
We believe that we are at this juncture so any trade recommendation here is not for the faint hearted.
If you follow our lead do so only in a very small amount of your investable portfolio and only add to positions very marginally and incrementally.
Whilst we were right the last week a trend change is never ever linear so whilst we see no reason to materially alter our recommendations we know very well that they could prove to be premature as the markets entices more and more participants only to punish those late arrivals at least in the short term.
 
Our recommendations for next week are therefore:
If you like risk buy the SP500 and /or the RUSSELL2000. Sell the NASDAQ100
If you went long precious metals take some profits
Sell the 30 year treasury bond
Buy the AUD
Sell the CAN$
Buy YEN
Buy Copper"
 
Now let's see how we fared on our recommendations:
Buying the SP500 and/or the RUSSELL2000 and selling the NASDAQ100 was a good call. Whilst the SP500 fell very marginally the RUSSELL2000 rose and the NASDAQ100 fell.
Selling precious metals was definitely the wrong call.
Selling the 30 year treasury bond was correct.
Buying the AUD was also good.
Selling the CAN$ was very good.
Buying the YEN was only very slightly wrong as the USD rose a very tiny bit against it.
Buying copper was unmistakenly wrong.
 
Only a slightly better than average week as the rise in precious metals was indeed very strong.
 
This week's economic data is both plentiful and important with much central bank activity.
 
USD: The US$ Index rose meaningfully last week.
A busy week for the USD.
We start on Tuesday with Core Retail sales followed by Retail Sales. Core excludes car sales and is expected to decline from 0.8% to 0.4%. Retail Sales which includes car sales is likewise expected to fall from 1.3% to 0.4%.
On Wednesday we have PPI thought to rise from 0.2% to 0.3% and Crude Oil Inventories.
Importantly we have the FOMC Economic Projections, the FOMC Statement, the FOMC Press Conference and the FED Funds Rate expected to remain unchanged at 0.5%.
On Thursday we have both CPI and Core CPI which excludes food and energy. The former is expected at 0.3% from 0.4% and the latter unchanged at 0.2%.
These are followed by the FED Manufacturing Index expected to rise substantially from -1.8 to 1.1 and the usual Unemployment Claims estimated to be 267,000 from last month's 264,000.
Finally on Friday we have Building Permits anticipated to rise from 1.12m to 1.15M.
COT data shows that large commercials decreased their net short position in the US$ Index from -16,046 to -14,704. This is now a 52 week rolling extreme. We therefore remain VERY BULLISH.
 
EURO: The EURO fell sharply against the USD last week.
There is only one important item for the Euro this week.
On Friday the ECB President speaks.
COT data for the Euro shows that large commercials sharply increased their net long position from + 50,714 to +79,538. As this is not close to a 52 week extreme we remain SLIGHTLY BEARISH.
 
GBP: The GBP fell sharply against the USD last week.
We start on Tuesday with CPI thought to rise from 0.3% to 0.4%.
Wednesday sees Average Earning Index anticipated to fall from 2.0% to 1.7% and the Claimant Count Change which is estimated to rise from -2,400 to 1,000.
Thursday is the big day. We begin with Retail Sales thought to fall from 1.3% to 0.2%.
We then have the MPC Official Bank Rate Votes which should remain at 0-0-9 meaning that all 9 members vote for rates to remain unchanged.
This is followed by the Official Bank Rate unchanged at 0.5% and the Monetary Policy Summary.
COT data shows that large commercials substantially increased their net long position from +51,984 to +84,439. This is now a conclusive 52 week extreme so we therefore alter our view from SLIGHTLY BULLISH to VERY BULLISH.
 
YEN: The YEN fell very marginally against the USD last week.
There are two newsworthy items for the YEN this week.
On Wednesday we have the BOJ Monetary Policy Statement and on Thursday we have the BOJ Press Conference.

COT data shows that large commercials again substantially increased their net short position from -13,526 to -43,861. We therefore alter our view from SLIGHTLY BULLISH back to NEUTRAL.
 
AUD: The AUD rose slightly against the USD last week.
Two items for the AUD, both on Wednesday.
Employment Change is expected to rise from 18,800 to 15,100 and the Unemployment rate is expected to remain unchanged at 5.7%.
COT data shows that large commercials increased their net long position moving from +8,618 to +19,482. We therefore remain BULLISH.
 
CNY: Only one item for the CNY this week which is the Industrial Production number on Sunday expected to rise marginally from 6.0% to 6.1%.
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 substantially increased their net long position from +24,250 to +53,904. We therefore remain SLIGHTLY BULLISH.
GOLD: Large commercials increased their net short position from -214,038 to -243,692 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 therefore remain BEARISH.
SILVER: Large commercials decreased their net short position from -75,965 to -71,834. We therefore remain VERY BEARISH.
 
The gold:silver ratio contracted from 75.87 to 73.69 indicating meaningful silver outperformance last week.
 
COPPER: Copper is an important metal as it is a leading indicator for many commodities. Large commercials very slightly decreased their net long from +41,356 to +36,235 last week. Large commercials generally carry a net neutral position. This therefore remains an interesting situation on the long side but we alter our view from BULLISH to SLIGHTLY BULLISH.
US 30 YEAR BOND: Large commercials substantially increased their net short position from -86,547 to -117,505 last week. This is a 52 week extreme. We therefore remain VERY BEARISH.
CRUDE OIL: Large commercials slightly decreased their net short position from -339,362 to -320,162 last week. This continues to be close to a 52 week extreme and we therefore remain BEARISH.
CAN$: Large commercials very slightly decreased their net short position from -30,322 to -29,402 last week. We therefore remain BEARISH.
NZD: Large commercials substantially increased their net short from -5,439 to -9,944 last week. We therefore remain BEARISH.
NASDAQ100: Large commercials increased their net short position from -52,457 to -65,931. We therefore remain BEARISH.
RUSSELL2000: Large commercials meaningfully decreased their net long position from +31,164 to -24,252. We therefore remain SLIGHTLY BULLISH.

THOUGHTS FOR NEXT WEEK
We have enjoyed good performance over the last few weeks. We have been far too long in the markets to believe that we are invincible and therefore anticipate problems ahead.
Whilst we would like to be long the precious metals, COT tells us otherwise.
Whilst we would like to be short risk, again COT tells us otherwise.
Therefore sentiment and hard facts are not aligned. We have found that when this contradiction arises the result is a heightened level of tension and volatility.
What will induce this volatility? The obvious answer is the UK referendum on leave/remain within the EU.
COT for the GBP is strongly telling us that to go short the GBP is a dangerous game to play. Soros tells us that a leave win has not been priced in. However Soros has been known to say one thing yet act in the opposite direction. "Do not as I say but as I do" springs to mind.
We follow COT.
 
Our recommendations for next week are therefore:
Buy risk in the form of the SP500
Continue selling both gold and silver. Particularly gold
Sell the NZD
Buy GBP
 
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Stay nimble. Good luck trading.

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