Gauging September’s Correction

Kotick Tick By Tick
Kotick Tick By Tick

Our weekly regular on the Closing Bellis Jordan Kotick head of global technical strategy for Barclays Capital. In this post, he's telling us what to look for in the month of September.

Q – Equities have started September on a weak footing. What are your thoughts on this and what should we be watching?

A – A weak September is seasonally consistent so that is not unexpected. HealthCare tends to outperform on a relative basis during risk aversion or heightened equity volatility as shown on the first chart (click here to see the chart: HealthCare vs the S&P). Therefore watching for signs of an impending upside move will be important in gauging the extent of the autumn correction.

Q – What about gauges outside of equities, given that global markets tend to flow together?

A – In FX space, lower stocks are often felt the hardest EM currencies, commodity currencies and JPY cross rates. Think of it this way, when stocks sneeze, EM catches a cold. Therefore, as you can see on the 2nd chart, MXN/JPY (top) and PLZ/EUR (bottom) both look like they are carving out a short-term peak. (Click here to see the chart MXN/JPY (top) and PLZ/EUR (bottom))Downside in both of these markets would likely be a consequence of and further support equity vulnerability. This is something else to keep an eye on.

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Q – Anything else on your radar these days?

A – Gold.

We have been and remain long term bulls on Gold.

We tend to look at it in currencies beyond the US Dollar since that often gives early signals. However, in Dollar terms (click here to see the chart), the large range trade, we believe is a pause in a bull trend. In 2005 and 2007, Gold broke out of its range trade in the month of September. In fact, September has been the strongest month for Gold since 1972. As such we think it is time to put Gold back on the radar.

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