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Short analysis of capital markets as of 28.12.2019

Fiala Petr
Published: 28.12.2019 | Last modification: 28.12.2019 11:55  | Comments: none
I have prepared several charts that I find interesting.

Everybody is probably interested in how big is an upside potential of  capital markets. In my view, there is now one decisive factor in the markets - american elections in November 2020. Donald Trump will not let the markets to drop. And FED is going to support him in this. I am almost sure about this. Trump has succesfully pushed Powell in the past and will do it again.    The FED now obediently pushes asset prices up and buys assets whenever primary dealers want more liquidity.  
But how is it in the short term? Stocks are very overbought. Volatility is pressed down. This you can see from the first chart. You can see two oscillators in the following charts. The oscillator in the middle is made up from the price, the second one is a volume indicator. Regarding VXX, I think that we are somewhere near the bottom right now and the volatility is going to burst. 

XLF- bank stocks. XLF looks like an inversion to VXX. This is  the key group of stocks. Any price growth without  banks is suspicious and probably not sustainable. And here I could say that the price is going to drop. 

IWM - small caps, weekly prices. Negative divergences are everywhere.  You can compare current situation with that of 2015 before the big decline. 

UUP - US Dollar index, weekly prices. UUP was sold out  in the last few days. It is a strong signal that something is changing under the surface. I thing it is a bad message for stocks. Investors  get rid of US Dollar. This can mean that they are selling American stocks and bonds. 

Conclusion: Stocks are very overbought. I see the situation bad for stocks in the short-term. From the long-term point of view I am still optimist.  However, new year 2020 could be the year of change. American elections  could be the trigger for possible larger decline of stocks.
Petr Fiala  

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