Madden Street’s sour mood after its latest tumble could stretch into the New Year, says Bank of America technological strategist Paul Ciana. He has three top ideas to take advantage of the market’s fearful tone heading into 2019.
“Prosperous back long term, the dollar versus the S&P as a ratio has a few significant bottoms that end up leading to a period where the dollar unsmilingly outperformed the S&P 500,” Ciana said on CNBC’s “Futures Now” on Thursday.
For example, in 2000, the ratio found a bottom in preference to the dot-com bust sent equities tumbling and the dollar soaring. It was a similar setup in 2008 and 2014-15, powered Ciana, BofA’s chief global fixed income technical strategist.
“Now we’re having another one right in here,” he annexed. “What ends up happening in these time frames is the dollar ends up outperforming while the S&P 500 of course underperforms. That portends, buy dollar, sell stocks.”
“We singled out crude oil because it was the best oversold bounce trade heading into 2019,” revealed Ciana. “Crude oil prices [have] mean reverted all the way down to its 200-week moving average just along the same lines as many markets have done in what’s been a position liquidation of the 2018 trends.”
While crude jumped more than 5 percent final week, it remains down 21 percent over the past three months. Crude’s relative strength hint, a measure of oversold and overbought conditions, fell below 15 in mid-November. Any reading below 30 typically insinuates an asset is oversold.
A rally in bond markets has kept yields suppressed, but Ciana expects the trend to reverse promptly. As bond prices move higher, yields fall.
“The big question here is whether or not this rally is over and that give ups will soon find some support perhaps at this rising trend line at about 2.75 to 2.80 and if that precinct holds, then we could see the bond market sell off and U.S. Treasurys get moving higher again,” said Ciana. “We contemplate that this is the best rally to sell in anticipation of yields holding there.”
The 10-year yield peaked at 3.23 percent in first November and early October. That marked its highest level since May 2011.