Busy week ahead with Q3 earnings releases

Abraham George Macro View

Third quarter earnings kick off tomorrow. As usual, it will start with the banks. JP Morgan and Citi tomorrow, BoA-ML and Wells Fargo on Wednesday. Earnings are supposed to be very good. With the Fed having absorbed all the credit risks and flooded the country with money, the banks have become real printing machines of money.

The latest Atlanta Fed GDP model is forecasting a 35% annualized growth in the third quarter which is a huge bounce back. Will it help Trump being re-elected again? Maybe not. As days go by, the needle is moving towards Biden at least that’s what the opinion polls are saying.

Over the weekend, there were more talks about Trump giving into the Democrats and upping the stimulus but it looks like it may not happen. The Democrats do not think they gain much political advantage this late in the election to accept something that doesn’t advance or fund the agenda they wanted to pursue under a Biden presidency.

Equities

Both the major indexes the Dow and S&P 500 are approaching critical levels that could question the present structure of the markets. If the rise from the Sep 24 lows are corrective in nature, it’s very important that they terminate close to current levels.

While markets can retrace 100% of the previous move, in which case for the major markets it is from 03 Sep, any move above 0.786% of the prior move weakens the argument that we are still in a corrective up move. For S&P 500 the 0.786% comes in at 3507.

Bonds

Bond prices are falling and yields are rising in line with our analysis. The strong targets that it can move down is close to 155 but as we have seen many times before it may not happen that easily.

Large speculators are amassing a huge net short position. Normally we use that information as contrarian indicators but this is happening much early in the trend so there could be more juice to the downside.

Euro

The rise in Euro last week makes the decline in Euro from 1.2011 to 1.1612 a corrective move down meaning that it can rise further. Only a move below 1.1612 can reassert the downward momentum. Will wait for a better picture to emerge.

Gold

With the break above our resistance level of 1925, the support at 1873 should remain solid. Chances are more that Gold will rise to 1985 to 2000.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.