BIST 100 (TURKEY) and INDUSTRIAL SECTOR

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From politics to its financial markets and its currency, news flow on Turkey has been negative. Can the financial markets in Turkey return to stability?  I’d like to draw attention to an interesting correlation between BIST 100  and the relative performance ratio between Industrial sector and BIST 100 index. Relative performance ratio is calculated by dividing the Industrial index (XUSIN) to BIST 100.

BIST 100 INDEX III

XUSIN XU100

Few findings:

1) Correction periods on the BIST 100 index resulted in outperformance for the Industrials and undeperformance for the Financials.

2) Since 2004, 0.93-0.95 area acted as strong resistance for the relative performance ratio between XUIND/XU100.

Few conclusions:

1) As the relative performance ratio reached strong resistance area, we are likely to see a change in trend favoring financials.

2) Change in sector performance (Underperform: Industrials, Outperform: Financials) could have a positive effect on the BIST 100 index.

We are at the early stages of this development and we should wait for the initial reaction (confirmation) on both the relative performance ratio and the BIST100 index.

USD/TRY – case study of parabolic moves

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Parabolic moves are common in the financial markets. They are widely participated (though not anticipated). During these type of moves volatility increases tremendously. Similar to a ball thrown in the air, once they run out of energy they fall back with the same speed. Below are four different chart examples with similar price actions. Frome a technical perspective all of them reached their upper boundary and reversed.

Steep price actions are not sustainable and they should be followed by sharp pull-backs. Both on the upside and the downside volatility remains high and daily price swings are sharp during these type of price actions.

USD/TRY (U.S. dollar/Turkish Lira) is experiencing a similar price action over the past few weeks.  We should accept high volatility and be prepared for pull-backs.

USDTRY II

GOLD

ROUGH RICE

USDKES

Update: TURKEY YIELDS and BIST 100

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Below are two updated charts on an earlier theme I discussed on this blog. Relative performance ratio between 2 year government bond yields and 10 year government bond yields is breaking above a critical threshold and repeating the same cycle of late 2011. Short-term yields are outperforming the long-term yields and the selling pressure remains intact on the equity index. As long as the 2YR / 10YR ratio trends higher, equity market will remain under pressure and yields will suggest further upside.

2YR vs 10YR II

BIST 100 INDEX II

S&P 500 and STOXX 50

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In financial markets trying to pick tops and bottoms has always been costly. Predicting the beginning of a larger scale correction or a uptrend is not only difficult but also a low probability bet. High probability set-ups are the ones when you have confirmation. Trade-off is that confirmations don’t come at the very early stages of a trend. As a result, to have a high probability trade you should be willing to miss part of the move.

S&P 500 INDEX

S&P 500 Index and Europe’s STOXX 50 had a rough week. Both indices experienced sharp pull-backs. Does this change the trend? Can it be the beginning of a larger-scale correction? We don’t know the answers to these questions… What we know is that indices are currently above their long-term averages. In the past, 200-day moving average has always been a good indicator. Breakdown of the moving average supported by a breakdown on a trend line support resulted in larger-scale corrections. In this case 1,700 levels will be important for S&P 500 index and 2,800 levels will be decisive for STOXX 50.

STOXX 50 INDEX

S&P 500 index is above historical highs which is at 1,580 levels. I’d define the strong support range for the S&P 500 as 1,580-1,700. Since the beginning of 2012, STOXX 50 index is in a uptrend. Strong support area for the STOXX 50 will be 2,700-2,800.

It is too early to call for a larger-scale correction. We need confirmation. We need to see decisive breakdowns.

U.S. dollar vs. MXN, TRY, PHP, TWD…

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My latest updates on twitter. I believe these charts are very valuable and suggest U.S. dollar strength against the currencies analyzed.

TURKEY YIELDS and BIST 100

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Over the analyzed period when Turkey 2YR Bond yields outperformed the 10YR, equity index entered into a correction and vice versa. This is an interesting correlation. Patterns on the relative performance chart of the 2YR Bond Yields vs. 10YR Bond Yields can reveal some important information on the direction of the markets in the following months.

Technical outlook on the 2YR/10YR chart is very similar to the second half of 2011. Since the beginning of 2011 BIST 100 was in a correction. Equity index resumed its downtrend after the 2YR/10YR broke above 0.97 levels. Relative performance reached 1.17 levels and BIST 100 reached the lowest level for that year.

Relative performance ratio between the short and long-term yields are now challenging the previous resistance at 1.00 levels. Breakout above this level could send the ratio towards 1.10-1.15 area once again and the equity index lower to test 60,000 levels. Failure to break above 1.00 levels will help the ratio to ease back towards 0.90 and the BIST 100 to hold above 65K.

2YR vs 10YR

BIST 100 INDEX

U.S. DOLLAR vs. CAD, MXN, TWD, TRY …

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Yes, it is a global trend and the dollar is gaining strength against most of the currency pairs. U.S. dollar index is trying to clear its 200 day moving average. Emerging market currencies have depreciated against the U.S. dollar over the past few months and seems like more and more weak signals are being generated by the recent breakouts. Here are some of the charts I shared earlier during the month and some new charts I want to draw attention to.

US DOLLAR INDEX

USDCAD

USDMXN

USDTRY

USDPHP

USDRUB

USDZAR

USDTWD

INDIA, U.K. and JAPAN

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Over the past few years equity markets had strong performance. Developed markets did better than the emerging markets but overall it has been positive for equity asset class. In this update I’m sharing with you 3 long-term charts that can be the center of attention in 2014. Possible breakouts in these 3 markets can add fuel to the equity strength in the following months. India’s BSE Sensex index, U.K. FTSE 100 index and Japan’s NIKKEI 225 index are testing their long-term trend resistances. Breakout above these long-term strong technical levels can result in a multi-month uptrend and attract more investors.

INDIA BSE SENSEX INDEX

UK FTSE 100 INDEX

JAPAN NIKKEI 225 INDEX

INDIA BSE SENSEX and USD/INR

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INDIA BSE SENSEX INDEX

Strong price action should be followed by a decisive breakout on the BSE Sensex Index. Since 2007, Sensex tested 21,250 levels for three times and over the past few months price action suggests a breakout to all time highs is very likely. Confirmation of the breakout should come after a decisive weekly closing above the strong resistance at 21,250 levels. 200-day moving average should act as medium-term support at 20,000 levels if the index fails to clear the strong resistance. Breakout above 21,250 levels will push the index towards 25,000 levels in a short period of time.

USDINR

Indian rupee gained strength against the U.S. dollar and this trend is likely to continue towards 58-60 area. Strong equity market should bode well for the local currency.

INDONESIA JSX 45 INDEX and USD/IDR

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USDIDR

2 year-long depreciation for the Indonesian Rupiah should be over with the USD/IDR reaching long-term trend resistance at 12,400 levels. In 2012, I’ve analyzed several emerging market currency weakness against the U.S. dollar. USD/IDR was one of the charts that formed major base reversal (inverted head & shoulder). Since then, the asian currency depreciated from 9,000 levels to 12,000 levels. 2 year-long uptrend on the USD/IDR is due for a pullback. 12,400 levels is a strong resistance and only a decisive break above this level would put more pressure on the Rupiah. Otherwise expect the local currency to strengthen over the next few months.

INDONESIA JSX LIQUIDITY 45 INDEX

Strength on Indonesian rupiah should have a positive effect on the equities as well. JSX Liquidity 45 index found support at the lower boundary of its uptrend and now it is challenging the 200-day moving average at 746 levels. Equities should resume their uptrend as long as the trend channel remains intact. Strong support for the equity index is between 650 and 700 levels.