TRADE IDEAS
MARKET COMMENTARIES
The debt ceiling and its potential impact;
US treasuries will be issuing 1 trillion dollars of debt in the next six months. Who will be the buyers?? That’s the main question.
Treasuries have to rebuild their cash balance which is called TGA. The market expects it will be mainly short-term t-bills in the short end of the yield curve.
Does funding come out of bank reserves or Money market funds? To analyze this we need to monitor reverse repo facility- RRP where money market funds park their reserves at New York FED in exchange for receiving collateral. Money market funds receive 5.05%from the RRP facility.
If to compare the RRP return of 5.05% and US1M-3M-6M we see that rates are higher than RRP. However, if FED decides to increase the rates in June rates will go up by decreasing the price of relevant bonds due to the relationship between the bond price and its yield. Therefore, it is exposed to a capital loss risk. Then if we see a flow from RRP to bonds we can evaluate that the market is pricing a pause and vice versa.
What has been particularly discussed this week is the fact that Canada and Australia raised interest rates at their meetings this week after having stopped their rate hikes. Canada had stopped in January and was the earliest to start raising rates, Australia had stopped in March but raised rates this week. It is being discussed whether there will be a scenario where the FED stops in June and hikes in July or August. Powell always had the tone that if we stop, we will stop. The problem is that there are different views on this issue in the committee. Powell and his auxiliary team are more on the "stop if we stop" side because they think that the additional credit tightening caused by the banking crisis has been effective enough in tightening financial conditions. The financial condition index should be closely watched.
About the recent move of the equity markets, it’s important to point out that this move is not a mass movement. It is mainly caused by the tech sector and the AI hype. Since the big tech sector constitutes a big portion of the indices, we see it as a mass movement. To see contagion to the rest of the market we need to evaluate the recession story correctly. That is so difficult since we do not know what FED means by expecting a “slight recession”
GBPUSD- Long Idea
GBPUSD trade idea had been shared in a previous RATIONALE report as well. The Bank of England (BoE) appears to have a longer path toward potential rate hikes compared to the Federal Reserve (FED). Taking into account the divergence between these central banks, after the recent fake breakout the rectangle chart pattern could present a favorable opportunity.
The chart formed an approximately 5-month-long Rectangle chart pattern as a bullish continuation after an uptrend, with resistance at 1.2444 levels.
A daily close above 1.257 levels would validate the breakout from the 5-month-long Rectangle chart pattern.
This breakout could potentially result in a chart pattern target of 1.3 levels.
COHU - Long Idea
Cohu Inc is a supplier of semiconductor test and inspection handlers, micro-electromechanical system (MEMS) test modules, test contactors, and thermal sub-systems used by semiconductor manufacturers and test subcontractors.
The chart formed an approximately 2-year-long H&S bottom chart pattern as a bullish reversal after a downtrend, with resistance at 39.33 levels, and a 6-month-long Ascending triangle chart pattern, with resistance at 37.86.
A daily close above 40.5 levels would validate the breakout from the first 2-year-long H&S bottom chart pattern. This breakout could potentially result in a chart pattern target of 60.23 levels.
A daily close above 38.99 levels would validate the breakout from the first 2-year-long Ascending triangle chart pattern. This breakout could potentially result in a chart pattern target of 48.57 levels.
50-day MA is above both 150 and 200 MA which confirms the uptrend.
HPQ - Long Idea
HP Inc provides products, technologies, software, solutions, and services to individual consumers, small- and medium-sized businesses including customers in the government, health, and education sectors.
The chart formed an approximately 8-month-long Ascending Triangle chart pattern as a bullish reversal after a downtrend, with resistance at 31.08 levels.
A daily close above 32 levels would validate the breakout from the f8-month-long Ascending Triangle chart pattern.
This breakout could potentially result in a chart pattern target of 39.2 levels.
Seeing an accelerating EPS and Gross margin in the last 3 quarters is another support for the idea of being long on HPQ.
It’s more of a patience play and long-term game. Better to be cautious and not to get into the ship without seeing a convincing breakout along with a high volume, considering the current levels of the US equities.
NXPI - Long Idea
NXP Semiconductors NV is a semiconductor company. It mainly provides high-performance mixed signal and standard product solutions for automotive, identification, wireless infrastructure, industrial, mobile, consumer, and computing applications.
The chart formed an approximately 1-year-long Rectangle chart pattern as a bullish reversal after a downtrend, with resistance at 187.9 levels.
A daily close above 193.5 levels would validate the breakout from the 1-year-long Rectangle chart pattern.
This breakout could potentially result in a chart pattern target of 248 levels.
BTCUSDT- Long Idea
The chart formed an approximately 9-month-long H&S Bottom chart pattern as a bullish reversal after a downtrend, with resistance at 25000 levels.
A daily close above 25750 levels would validate the breakout from the first 9-month-long H&S Bottom chart pattern and it happened on 13/03 week.
This breakout could potentially result in a chart pattern target of 40000 levels.
Currently, we are experiencing a pullback towards 25K levels which could be utilized as a long opportunity. Trade with a stop loss below 25k would be a rational bet.
This weekly chart is helpful to get rid of the noise of the recent news flow regarding the Binance and Coinbase lawsuits.