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Treasury Sales Team

Edit Tarsoly Kovácsné

+36 1 288 7541 [email protected] Zsombor Zölde

+36 1 288 7572 [email protected] Márton Meichl

+36 1 288 7543 [email protected] János Mladoniczki

+36 1 288 7551 [email protected] Attila Torma

+36 1 288 7544 [email protected] Szilvia Lovas

+36 1 288 7545 [email protected] Ákos Fekete

+36 1 288 7553 [email protected] Frigyes Soós

+36 1 288 7571 [email protected] Gábor Pozsgai

+36 1 288 7554 [email protected] Attila Keresztyén

+36 1 288 7552 [email protected]

Örkény Szűcs

+36 1 288 7547 [email protected]

Global Technical Weekly Report 30 March 2015

mailto:[email protected]











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TECHNICAL ANALYSIS 30 MARCH 2015

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RUSSELL2000, Weekly Sources: Reuters; Portfolió-Markers; Stockcharts.com

Uptrend

Aggressive sellers stepped in last week; this could turn out to be a failed breakout Breakout failure would be signalled by a break and hold below 1,2K The overall trend points higher, thus bears have to continue to show their strength Note that small caps and tech indexes keep outperforming (both are above their 50-day MAs). This aggressive leadership could signal that this is just a pull-back in the context of the uptrend

Primary Support: 1,195 Secondary Support: 1,150

Primary Resistance: 1,270 Secondary Resistance: 1,300

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S&P500, Daily Sources: Reuters; Portfolió-Markers; Stockcharts.com

Neutral

I am going to monitor reaction to the high and low of the candle printed last Thursday It can be viewed as a small reversal candle; a break above its high at 2,067 could spark a retest of the 2015 high; while a break below its 2,045 low could trigger a retest of the 200-day MA Note that the three sigma down day from last week is usually followed by similar large wide daily ranges This leads me to think that we could see another high volatility 60 point range like we had back in January Also note that the past two months led to the formation of a 2B pattern Keep in mind that this pattern still needs to be validated by a breakdown Primary Support: 2,0450

Secondary Support: 2,010 Primary Resistance: 2,080 Secondary Resistance: 2,115

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Ratio of the VIX and the VXV (1-3 months contracts) Sources: Reuters; Portfolió-Markers, Stockcharts.com

Although last Wednesday’s selling was hard, it was not hard enough to trigger real short term panic To identify panic I look for backwarding VIX futures (when the short term contract is above the long term one) A quick and dirty way to identify such cases is to look for the ratio of the VIX and the VXV trading above 1.0 I am waiting for this signal to take on long Deltas I know that hindsight bias does not help to become profitable but note that last week’s move lower was preceded (1) by March OPEX which led many participants unhedged and (2) by the highest daily volume reading of 2015 which led to upside exhaustion

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DAX, Daily

Sources: Reuters; Portfolió-Markers, Stockcharts.com Uptrend

There is a time-based correction going on, working off the strong weekly/monthly overbought conditions The index tested the advancing 20-day MA last Thursday, and reversed higher from it A break and hold above 12K could trigger more upside Any strong reversal signal is missing but a break below last week’s low could trigger a gap fill at 11,400 (price-based correction)



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NIKKEI, Daily

Sources: Reuters; Portfolió-Markers, Stockcharts.com Uptrend

Same song and dance here (20 MA retest), although the move lower was somewhat stronger A break above 19,600 could trigger a move at least to the 2015 high, while a break below last week’s low is likely to trigger the second leg lower of a two-waved correction Both here and in the chart above a failure to bounce from the 20-day MA would be bearish, indicating a breakdown coming (the more often a level is tested the more likely its break becomes)



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BUX Index, Monthly

Sources: Reuters; Portfolió-Markers, Stockcharts.com Range

Emerging equities in general move in sync with the USD, but this one is an exception It moved sharply higher in the last two months to arrive at its range-top resistance Any kind of corrective action in smaller time frame charts would be constructive and would indicate a breakout coming



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EUR/USD, Monthly

Sources: Reuters; Portfolió-Markers, Stockcharts.com Downtrend

If it is able to close March’s candle slightly higher (around 1.09-1.10), it would form a lower shadowed hammer candle A subsequent break above the March high could trigger a corrective move higher in the context of the downtrend Now I really do not like to talk about signals and patterns, which are not presented in the market place, but there are only two more days to go in March and it should only move slightly higher in these two days to create this reversal candle Note that this would be the first counter-trend signal, indicating responsive buyers since the 2014 summer high

Primary Support: 1.075 Secondary Support: 1.0650

Primary Resistance: 1.09 Secondary Resistance: 1.1050

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EUR/USD, Daily

Sources: Reuters; Portfolió-Markers, Stockcharts.com Neutral

A break below last Friday’s 1.08 low could trigger a move lower, to pre-Fed levels (sub 1.0650) Note that this scenario would invalidate the evolution of the monthly reversal candle The two short-term levels are 1.08 and 1.10, a move could follow in the direction of the breakout from this tight bracket Overall this Fed-triggered up move looks corrective in the larger-time frame downtrend



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USD/JPY, Daily


This one keeps trading in a mean-reverting fashion in the 116-122 range The middle zone of a range often serves as support or resistance which is around 119 here It created a lower shadowed reversal candle last Thursday, a break and hold above its 119.60 high could trigger a 20-day MA retest at 120.40 A retest of the top of the range looks more likely now, I would only expect a drop to the bottom zone of the range if the low hit last Thursday fails to hold at 118.30

Primary Support: 119 Secondary Support: 118.25


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EUR/PLN, Monthly


The monthly Bollinger bands are super-pinched-in; they were narrower only twice in the past two decades This suggests a trending move coming soon The cross is currently trading in the 4.05-4.30 bracket; a breakout from this range could trigger a strong move in the direction of the break The cross has been trading roughly between 3.30 and 5. Note that the bracket mentioned above is right at the middle of this wide range



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30-year US Treasury Note Yield, Weekly

Sources: Reuters; Portfolió-Markers, Stockcharts.com Downtrend

The long-term downtrend is still valid; yield was not able to hold above its dropping 20-week MA (which signals the direction of the trend for me) This downtrend could morph into a range because there are two comparable-paced moves going in opposing directions between 2.22 and 2.90



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Wrapping it up

The highest daily volume reading of 2015 (printed two weeks ago on Friday) triggered a wave of selling last week. Last Wednesday’s selling was really hard, it was a three-sigma-down day in the SPX. Keep in mind that these large daily moves are usually not one-off events; they are likely to trigger similar days. These could go both higher and lower but I expect wide daily ranges.

Although I only highlighted as cons to upside follow-through that (1) March OPEX was likely to leave many participants unhedged and that (2) the highest volume reading of 2015 could also indicate upside exhaustion, these were the yellow lights before the selling. I know that hindsight bias did not help anybody generating profits, but keep these signals in mind.

Speaking of future price action, the direction of the longer-term trend points higher. Small caps and tech indexes are outperforming, they are both above their 50-day MAs and they tend to be good leaders. Looking at market structure, there are quite obvious double top patterns in the daily charts. A break below last Thursday’s low would validate them, triggering another leg lower. Such a breakdown would target the 200-day MA and the 2015 lows. Keep in mind that pattern fulfilment is just as important as pattern failure; if the price pierces just below last week’s lows only to find buyers there, a retest of the YTD highs is probable. One other thing: although last week’s selling was hard, it was not enough to cause general panic because the VIX term structure is still in contango. A backwardation in VIX futures would make me pick up long deltas aggressively. A quick and dirty way to look for backwardation is to look at the ratio of the VIX and the VXV, a break above 1.0 there would signal backwardation.

Looking at YTD sector performance, the weakness of XLU stands out. This signals that the market is pricing in a rate hike, which is not warranted in the charts of treasury yields (US10YT). Note the US yields: 10 and 30 year maturities were not able to stabilise above their dropping 20-week MAs and the long-term downtrend is still intact. A break above the early March high would make me much more confident about the advancing rate story.

Another development in global equities from last week is that both the German DAX and the NIKKEI have retested their advancing 20-day MAs since bouncing higher from it in February. So far this is just a natural correction working off overbought conditions but a break below last week’s low could trigger a more serious price-based correction.

Emerging equities (EEM) chop around in ranges, following the USD. Looking at Hungarian equities, the BUX arrived at its range top serving as resistance around 20K. Note that this area was tested in 2011 for the last time. At the time of this writing, I could not identify any strong reversal signals around this resistance. Note that some sideways corrective action would be bullish, indicating a breakout coming from the multi-year range.

Moving to FX, an interesting monthly candle could be forming in the EUR/USD. Some more buying into month-end would form a long lower shadowed candle. Note that this would be the first monthly candle signalling any kind of responsive buying since the 2014 summer high. There are two more days to go, but this is something to keep an eye on. Such a reversal candle could trigger some corrective action. Looking at shorter-term charts, a break below last week’s low could trigger a move back to 1.0650 and resistance is found around 1.10.

The USD/JPY tested the middle zone of its 116-122 range. It broke below this support only to find buyers, and bounced higher. This way it created a daily reversal candle on Thursday; a close above the 119.60 high of this candle could trigger a move higher. To play this setup, a stop should be placed below the 118.30 low of the hammer candle. The first upside target of this setup is slightly below 120.50 at the 20-day MA. Keep in mind that the cross is still in mean-reversion mode; adjust position management and size accordingly.

A cross from the EMFX bucket is the EUR/PLN. Its monthly Bollinger bands are super-pinched-in; they were tighter only twice in the past two decades. This indicates a strong directional move coming soon. Such a move could be triggered by a breakout from the 4.05-4.30 bracket.

Technical Analyst

András Salamon [email protected] +36 1 374 7225

Chief Economist

Gergely Tardos [email protected] +36 1 374 7273


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