YaKa

Post QE Opportunities Test

FX:SPX500   S&P 500 Index
259 1 9

Early announcement, Brinkmanship, success. Mario is a good DJ.

The built-in negativity/tension has been and could still be fuel for a market higher as shorts unwinding and chasing takes place.

European Yields being stuck close to the floor, the current success is taking shape through EURUSD             and mechanically into European stocks.

EURUSD             could move lower to 1.0700 as first target and potentially lower/later after a bounce.

Equities in Europe have technically 10/15% upside left after overcoming the current resistance (there could be an interim correction starting a few percent higher and finishing a few percent lower).

There is still a question about volatility which is still high. This could be fuel for equity increase.

If VIX             manages to settle below 16, it might recede to historical lows in the next few months as the rally progresses and option players fold.

What now?
- Markets are buoyant and as the result of the current implementation can’t be seen for a while, it is going to be difficult to be derailed.
- The search for yield and the perceived floor on the market may incentivise investors to seek other sources of performance.

Best trades:
1) Short bunds at 158.70 target 152.
2) Long European equities still (the PE differential between Europe and US 10 vs 17 + Europe export 40% of GDP vs 13% in the US + EURUSD             down).
3) Short USDIDR             .
4) Long WTI around 44/46 (the death of Saudi King if it induces change can only be positive for the WTI in my reading, i.e. if they cut production).
5) Long XLE             (as long as 72 is defended, it could be due for rebound helped by (6).
6) Long Brasil Equities ( ETF EWZ             ) (technically, the question: is the worst priced in? It could be given the media battering).
7) Gold             – Long to 1350 and Risky short from 1350
8) SP500- Short 2140 (+/- 2%) – Around 2060, you are in the middle of the range.
9) Long treasuries (risky with rates hikes looming but maybe that is the contrarian trade).
10) Buy EURUSD             at 1.07 for a technical bounce.
11) Sell USDBRL             (that is catalyst for (6))


Great breakdown Yacine!
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