Analysis and Market Setups - Stocks Rising, GDP Rising but things Not Straightforward
Stock-Markets / Financial Markets 2018 Jan 29, 2018 - 12:00 PM GMTBy: Abalgorithm
US GDP rose at a 2.6% annual rate in the fourth quarter. Output grew 2.5% in 2017 as a whole, the most in three years, and the Federal Reserve predicts 2.5% growth again in 2018. Business executives have reported solid quarterly earnings in recent weeks and pointed optimistically to investment and hiring plans for 2018, supported in part by federal tax cuts. Stock prices keep churning higher. And on Friday the Commerce Department reported that U.S. economic output remained on an above-trend path in the final three months of last year.
GDP
GDP Components
The expansion is being spurred on by robust consumer spending and business investment. It isn’t near the vigor of the late 1990s, but that was the last time growth clearly accelerated this deep into an expansion.
GDP Country Wise: Around the world - EU leads the way
The U.K. economy in 2017 grew at the slowest pace in five years, highlighting how Britain isn’t reaping the full benefits of the recent upsurge in global growth as it prepares to leave the European Union. The U.K. economy expanded 0.5% on the quarter in the final three months of 2017, an annualized rate of 2.0%, the Office for National Statistics said Friday.
However beyond the headlines, the story is different as shown by the F-Indicator (a data indicator developed and used by abalgorithm). The F-indicator tracks economic strength on a real time basis. F - Indicator differs from the official analysis as it suggests that the US economy is not just dragging but is worsening while EUR economy is gaining in strength over the last one year. UK Economy too has started to slide into low growth. The F- Indicator is fairly accurate and works differently from official reported numbers.
Here are the F-indicators to prove the point above.
Clearly the numbers and reported data of god GDP numbers are not matching with the soft underlying economy. The F Indicator is sliding negative which suggest that the US economy is not only dragging but is deteriorating at a fast pace.
The US GDP growth however is coming at a significant weakening of the dollar. If you remember, this is what we had said earlier in January that Dollar index shows no sign of bottoming. Since then EURUSD has moved 400 pips in the direction of our trade.
Dollar Index Charts Weekly
Dollar Index Weekly charts have broken the trend line from 2014. This line was broken at 94. We are at 90 now. It is important to note that the 200 WMA is still rising and therefore there is possibility of a short covering rally in dollar index. But that is not yet fully confirmed.
Gold Charts
Matching closely with the weakening dollar, Gold has found solid breakout potential at 1350. We believe an outright breakout to 1500 is nearing. Gold move often will suggest increasing volatility in other markets as it is safe haven along with being a inflation haven. Central banks have tried very hard to keep Gold pegged down for over 8 years. They have been sucessful to some extent but their grip is weakening as inflation picks up and dollar weakens.
Gold Charts
GOLD is at 1350 and not overbought. We believe Gold will move higher this year.
Oil Charts
Oil prices have closed at 70.4 well above the breakout level at 62.
Copper Charts
Copper is synonymous with commodities money flow. The breakout in copper has shown no signs of exhaustion. 2018 is turning out to be exactly the year we had predicted to be about a commodities year.
VIX Charts
VIX weekly prices have been at 10 to 11.5 for over 52 weeks. The prices could only be going higher. With stock index at new highs, VIX has refused to break down. VIX has only one way to go.
SPY Charts
SPY prices are overbought the weekly timeframe. The prices have hit 2 SD of the 20 moving average on weekly timeframe. Because prices are under such momentum, the 3 SD is not out of reach at 2905.
Junk Bonds
The high yield ETF is consolidating at the highs. Chasing yield has been a characterstics of this market.
High Low ratio 5 Day
The new highs to new lows added over a 5 day period show stable internals for the US markets.
Trading Charts
EURUSD
Be careful here as EURUSD hits 3 SD of the 20 Bollinger bands. This is where you do not want to trade EURUSD and let the overbought conditions ease.
GBPUSD
GBPUSD is as overbought as EURUSD is on the weekly. It has also hit 3 SD of the weekly 20 bollinger bands. We like to offload any GBPUSD positions. Trend traders must not trade GBPUSD for the time being.
NZDUSD
NZDUSD has broken out of the weekly downtrend. Expect push higher to 0.75.
Given the relatively overbought EURUSD and just broken out NZDUSD, we think shorting the EURNZD may be a good trade for the coming week.
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