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Analysis of Capital Markets for June 26, 2014

Fiala Petr
Published: 26.6.2014 | Last modification: 26.6.2014 06:33  | Comments: none
Stock indices have refused to go down despite all the negative news regarding GDP print of -2.9% for 1Q/2014. Current euphoria must be really strong if there is almost no reaction to such a negative message about the state of the economy. Here is my view on the situation.
First of all a recapitulation of seasonal factors. It seems to me that traders use as a guide U.S. 4-year presidential election cycle.  The  average year´s cycle has a weaker significance in this moment. As you can see in the chart below, months May and June may be really strong from the point of performance of stocks ( green and blue curve).  Some problems may arise in the second part of July. The most problematic part of the year begins after July 15 and there is no exception. Seasonality is weak according to both cycles ( full year cycle and 4-year election cycle).
Figure 1:


Figure 2: FED acitivity and sentiment of primary dealers ( banks) - the indicator in the upper graph panel  shows slightly declining trend in the demand of banks for the FED money. Markets are overbought, there is nowhere to put  the money. The worsening sentiment of banks is also reflected in their Net Short positions for stock futures contracts ( COT reports). Net SHORTS are slowly going up. However activities of the FED are growing up as well. It is the FED again that affects current growth in prices of stocks. FED currently has reduced reverse short-term repurchase operations ( TOMO) and in addition we can see a pick up  in security lending operations.


Figure 3: SPY + weekly price oscillators - all oscillators are rising right now

Figure 4: MAIN index - this is a synonym for a small cap universe. This virtual index is made of the U.S. mostly mid cap cyclical stocks, however it has been largely correlated with IWM in recent months.  You can see that traders have bought these stocks in the last  few weeks. Strong accumulation  might portend OUT PERFORMANCE of small cap stocks in the months ahead. But first I expect some correction which would be in line with bad seasonality during August and September.   

Figure 5: US Treasuries + LONG positions ( COT reports - stochastic oscillator) - you can see that LONG positions went slightly down in  the last  few weeks. However this situation seems to me rather supportive for the U.S. Treasuries. Both banks and speculators are bullish as for these assets.

Figure 6: This chart shows that stocks are overbought right now. I see it as negative, however I do not think that this is the market TOP. 

Figure 7: Gold - I see gold as positive right now. Summer months are good for metals from the point of seasonality. Stocks are overbought and vulnerable to some correction and that is good for gold as well.

That is all for the time being now.


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