Summer Camp

It’s no big secret that summer is my least favorite season here at the lair, as many of our regulars are on vacation and equities usually settle into a sideways volatile trading range. Central banks are also on their summer break and that means the primary market driver of the past decade remains absent until the leaves (and sometimes stock markets) are beginning to drop. So in terms of seasonality we are not exactly in the most exciting time of the year, which by the way is completely in line with historical precedence:

Here’s a rolling 2 week chart of S&P returns – we are currently in week 33 (blue arrow). Apparently we should expect a bit of weakness next week but in general August is nothing but a four week summer camp. Things should get more volatile again in September which happens to be one of the most bearish months of the year.

I think the hourly panel visualizes what I meant by ‘sideways volatile trading range’. Very easy to get taken for a ride here which is why I usually don’t bother with equities in July and August.

The volume profile shows us a pretty nice perspective on the situation and it suggests that the S&P is in the process of building a support range here that could be exploited further down the line. Of course it could also start acting as a resistance range but usually these types of sideways formations do not end up as market tops. Most likely we will first see an exhaustion spike higher before things potentially turn lower. But for now there is no reason to think about bearish exposure, at least not until September.

I wanted to briefly revisit yesterday’s thoughts on the trajectory of the Dollar which as you know is starting to concern me. As anticipated the EUR/USD has remained largely unimpressed and a push above 1.183 would probably lead to another ramp higher.

We’re seeing the exact inverse on the USD/JPY which has almost erased any of its Friday’s gains. The daily panel shows us a pretty well established support diagonal which, if breached, leads us much lower.

In summary it’s not looking good for the Dollar and continued weakness near an important long term inflection point (see yesterday’s post) could lead to a cascade of stops being triggered sometime in the near future.

Gold is showing signs of life and technically speaking is now a textbook last kiss goodbye (LKGB) candidate. However given the recent gyrations I would probably feel more comfortable reloading my long position after a successful retest of 1261. One single spike higher ain’t gonna do it here.

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