Last week’s crash caused tremendous technical damage in stock markets around the world. What caused the crash is a matter of considerable debate but we believe the causes are mostly found outside the US. Europe’s debt crisis continues to create liquidity problems for European banks and that has fed back into other markets. Combined with what is becoming an obvious slowdown in global growth that was enough to push a lot of investors to the sidelines. Safe havens from gold the US Treasuries were the beneficiaries.

 

The Euro refuses to crack despite the turmoil. I think this says more about the dollar than the Euro.

 

One of the early clues the economy was slowing was the flattening of the yield curve. While there is no technical evidence yet that the flattening trend is over, better economic statistics would tend to steepen the yield curve especially considering the Fed's decision to peg short rates low for the next two years.

 

The Aussie $ held above the 200 day MA but technical damage is considerable. With rate cuts likely next on the RBA's agenda, the next move is highly debatable. Will expectations of better growth cause a rally? Or will lower rates push it lower? I lean toward the former but haven't made any commitment yet.

 

The Loonie has fared even worse than its Aussie cousin and is now below the 200 day MA. If commodity prices continue to fall both the Canadian and Aussie $s will likely have a tough time.

 

Gold stocks continue to struggle despite record prices for the metal. I believe that is a warning sign for gold buyers.

 

Gold briefly broke $1800 but fell back a bit at the end of the week. As markets calm I expect a correction back to the trend line - at least.

 

Commodity indexes are in a downtrend and absent another leg down in the US dollar, I expect that to continue.

 

REITs also appear to be establishing a downtrend. 200 day MA should act as resistance now.

 

Crude oil got close to my short term target of $70 last week and is now in a well defined downtrend. A rebound into the 90s would not be surprise but I still expect to see prices trend lower.

 

The US dollar index continues the basing pattern that has been in place since May. If Bernanke can resist the siren song of more QE, a rally could take us back to the high 80s.

 

10 Year Treasury yields briefly broke the long term uptrend line last week but closed right on it. If the US economy manages to avoid recession, yields should rise from here.

 

Emerging market bonds took a hit too but with rate cuts becoming more likely, we added some to our tactical portfolios late last week.

 

High yield bonds perform very poorly in a recession which explains their recent sell off. Technically there is nothing to recommend them but if the US avoids recession, there is probably considerable upside.

 

Long term Treasuries approached the highs seen at the height of the 2008 crisis. We don't think this is warranted and would be sellers.

 

Brazilian stocks, like a lot of emerging markets, are very oversold and a rally seems likely. However, we are still uncomfortable with the long term fundamentals.

 

Emerging markets more generally are attractive on the long term chart. I think we will start to see some interest rate cuts in many of these countries which should support equity prices.

 

Indonesia has been a strong market and held up better than most in the selloff.

 

We have been fans of Poland, a country with strong fundamentals but technically it is a mess.

 

The S&P 500 crashed through my retracement target of 1220 and touched 1100 last week. Expect a rebound to the previous support of 1250. Any move higher than that will probably take considerably stronger fundamentals.

 

Thailand is one of the few markets still above its 50 and 200 day MAs.