Pater Tenebrarum

About the Author Pater Tenebrarum

I'm an independent analyst and have been involved with financial markets for 31 years. I write economic and market analyses for independent research organizations and a European hedge fund consultancy. I'm the main author of the blog 'Acting Man', which presents articles on the markets and the economy, a mixture of commentary on current events as well as economic theory and history from an Austrian school of economics viewpoint.

Market Outlook: Second Quarter Long Term Update

By Evil Speculator

My favorite quarter of the year is slowly drawing to a close, with Memorial Day in the U.S. marking the beginning of the long awaited vacation season. It’s been a long winter and we haven’t really seen much of a spring over here in the Mediterranean to be honest.

The past three months brought us only a few warm days as the general theme was dominated by rainy weather, cold spells, and even a patch of frost in late April that damaged a good number of vine crops up North in Southern France.

Fortunately Spain was mostly spared and perhaps 2016 will finally be remembered as the year when the excellent wine produced down here in the Peninsula finally received the international recognition it deserved. Then again, I very much do enjoy buying a bottle of red bliss for under €10 that often challenges some of the most renowned French labels selling for three or four times that much over in the U.S. You may want to start studying up on the various classifications and labels – they’re quite a bit more easy to grasp than the pretentious mess over in France.

The Long Term Picture in Equities

With the Memorial Day weekend only days away I expect few of you to be trading after today, especially after we saw some significant moves over the past week. So I thought it best to spend a bit of time today getting everyone up to speed on the long term picture, starting with the biggest story right now – equities!

I was actually pretty busy coding and bug fixing yesterday morning, but I somehow managed to earn my keep and post an early warning to everyone as the writing was clearly on the wall. We have had our eyes on that diagonal on the daily panel for quite a while no and the early morning tape strongly suggested a big run was in the works.

In the matter of only one session the bulls managed to completely obliterate a stack of upside resistance (shown above in the chart) and paved the way for consolidation near the 2100 mark and most likely for a push higher over the coming weeks and months.

Below is the weekly and monthly view. The bulls really managed to turn the table as the bearish case now is hanging by a mere thread. The 100-week SMA around the 2020 mark is now well established and will act as strong support should we see another retest before the summer season.

But the final hurdles are still up for grabs – currently we are trading right at the diagonal on the monthly (right) panel and between 2105 and 2110 sits a stack of weekly and monthly NLBLs which won’t be easy to overcome.

ES (SPX) weekly and monthly – 2105 – 2110 an important hurdle – click to enlarge.

Should the market push beyond that, then expect a massive squeeze higher. The point and figure chart flagged a double top breakout and currently proposes 2165 as a long term target. Clearly we won’t get there in a week and I expect quite a bit of churn over the coming quarter.

The bearish case on the other hand is pretty much dead UNLESS Yellen makes good on her jaw boning and actually raises interest rates by more than just a few basis points. Why this market still requires any vestiges of quantitative easing is beyond my grasp, as it’s been more or less eight years of bliss for the bulls.

Euro Weakness

The Euro has been a bit of a pleasant surprise for me as I feared for the worst in the face of a slowly strengthening EUR/USD exchange rate. However it seems that the 100-week SMA near the 1.16 mark proved to be surprisingly solid and it’s been nothing but red candles over the past month, which incidentally should greatly benefit my epicurean lifestyle over here in Europe.

EURUSD, daily and weekly – resistance at 116 contains a so far weak rally with overlapping waves, but support is in sight – click to enlarge.

I may start hedging myself a little bit however as long term support is now being tested and may produce enough of a bounce to propel us back higher.

The P&F on the FXE also shows us at a major inflection point as a drop below 108 will most likely lead us lower toward 105.5. Suffice to say that I will be making multiple visits to the local ATMs this weekend.



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