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Chameleon Asset Strategies Blog

Items filtered by date: February 2016 - Chameleon Asset Strategies

Last week the markets were pretty upbeat. We saw some of the first signs of positive activity in the oil patch in quite some time. Global banks recovered a sizable chunk of the year’s losses. Stock index futures also managed to make some significant headway.

The March oil contract made a new low however the April contract held its January low and has risen a few dollars from there. This is a relatively subtle difference in the charts, but it carries quite a bit of technical significance as the selling pressure has subsided somewhat. It’s still too early to be calling a bottom at this point as the fundamentals remain pretty ugly, but it's a start. Many analysts see price stability in energy as a prerequisite to any sustainable rally in stocks.

Jamie Dimon ( The CEO of JP Morgan Chase Bank) personally bought 500,000 shares of his company, worth around $26 million. His confidence in the strength of the US banking system attracted many other buyers. Deutsche Bank will buy back around $5 billion of its senior debt, which helped to sooth some fears over its capital position. The market loved these headlines but I really don’t see any material change in the environment that sent them tumbling in the first place, save for a pause in the oil freefall. The currency fiasco in Latin America, systemic debt fears tied to depressed commodity prices, and fallout from slowing growth in China are still very much in play. Take the bounce with a grain of salt.

Equity futures rebounded nicely after a rough start to the month. Unfortunately, the rally appears to consist predominantly of short covering and not necessarily new buyers stepping in. This fluffy rally has also pushed the S&P right into the upper part of its trading range while reaching an overbought condition ( when prices move up too fast in a very short amount of time ) This would normally be a setup for sellers to return to the market. A close above 1950 and we’ll probably see a short term extension of the rally – a close below 1900 and one would expect to revisit 1800. We’ll see what happens.

All the best,

Stephen

 

 Crude started the week by heading below $30 again and breaking all recent support; Equity futures fell with them. On Thursday around 12:45, a carefully crafted, suspiciously timed headline was released, which stated that OPEC may have an emergency meeting and begin coordinated production cuts. Both oil and equity futures were at their session lows, which also happened to be the lowest intraday levels for both that we’ve seen in recent years. The futures surged on the news and took advantage of a long weekend where traders prefer to close their short positions, which fueled the gains. If ( and it’s a HUGE if) there is any truth to the rumor, these markets have a good chance of rallying further in the near term. If there is no merit to the rumor, which I suspect that there is not, plan to see oil continue to make fresh lows and drag index futures helplessly along with them.

 Why do I think that the rumor isn’t true or won’t carry the weight that people hope it will? Saudi Arabia has been silent on this headline, once again. The statements they have made in the past indicate that they have a very clear agenda, which is to keep prices low until high cost producers are flushed out and stop oversupplying the market. We’ve just barely started to see the kind of pain necessary to fulfill their aspirations. Most companies have halted drilling and a few high profile oil players have cut dividends, but in my opinion there has been no meaningful decrease in production. I believe that the Saudis are committed to their goal and will continue to pump at record levels while boycotting any efforts of other weaker players to slow the bleeding.

In the near term, oil will continue to take center stage and lead index futures. Gold and Treasury futures have surged  and are due for a pullback before continuing on their trajectory. I’ll be looking for attractive places to buy them and join the trend.

   

All the best,

Stephen

 

This week Nasdaq futures dropped like a rock while the other major indices held up much better. Why such a divergence? Investors chose to shed risk and start playing some DEFENSE ...  Utilities, telecom, and consumer staples are sectors showing price stability as large players seek safety over growth. Historically, this is a move that is made in anticipation of economic weakness and in my opinion is evidence of a shift in overall market sentiment.

The S&P futures were able to hold the 1865 level, but given the price action in the Nasdaq futures, it appears that the next leg down may be upon us. The next few days will be telling. A close above 1925 in the S&P futures and there's a chance we continue higher in the short term. A close below 1850 and the fabric may unwind rather quickly. I’m going to watch things unfold and let stocks pick a direction. The price of oil will likely create a catalyst in one direction or the other. Until then I’ll be looking for opportunities in other markets.

 

 

Take care,

Stephen

 

 All works
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