I’ve finished my travels for now so I’m able to make some more pertinent comments on this market and bring you the usual Tuesday analysis a day late.
The Swiss team forecast a near term weakness possible until end may. This is on the basis of momentum divergence and weak internals. They don’t forecast anything more serious as a correction so long as the sp500 level of 1814 holds. From a pure price analysis they are of course correct. The sp500 bull trend is intact so long as 1815 holds. They maintain market sentiment is not bullish enough to merit a major correction as yet. Mid cap weakness comments = perfect! And I agree and whats more this fits with the macro again perfectly, in my view. Ie higher earnings by the large cap is not coming alongside revenue gains and main street continues to fail to benefit from the falling junk bond yields, zero interest policy and share buy back strategies that the majors can employ! Sector wise bank weakness is a good indicator this market is topping out.
Fixed income wise they stick to their guns for the bonds to sell off soon. UST to possible 1.375 as a completion of the false break? From a macro perspective the bonds are a safe heaven usually unless risk off comes alongside rising inflation ie stagflation. US inflation has bounced a little but there is little to suggest,as yet, a spike. Its a brave (and worrying, as implies no safe heaven bond assets though this would be good for gold!) . For my book no conviction on this one, as yet.
Gold they are looking for this price area to provide the higher high to allow a breakout of the bear trend. Price discovery at present and a battle therefore but inconclusive as yet i suggest.For my book low conviction but a bias towards gold in my trading plan and therefore i hold a little leverage here and an over allocation of funds to the asset class. Aside from last year im generally over allocated to the class.
Euro indexes wise, agreed re the ftse100 and plays into the end cycle commodity strength issue. The oil and gas sectors display much relative strength whether bad or good days for the wider risk markets. There are signals for commodity bulls here but its not conclusive as yet. This simply determines the level of allocation, and instruments used. Ie no wmd (futures ) yet! Out of money options yes.
Its a useful report but needs to be seen alongside others at present is my view. We have plenty of chop here and confusion across sectors is starting to be the theme. Hedge funds are losing money generally in 2014. Market trends and correlations are weakening across asset markets and sectors. Risk becomes harder to manage in this sort of environment and profits are stalling. Sentiment via put call ratio to its 20 day moving average stands at +1 std to the mean. Its not a overly bullish level its true. Certainly recent price weakness, reduced correlations and reduced profits for participants is playing into more hedging and less conviction.
When you put it all together you see the Russel2000, Nasdaq and NYSE have all topped out. The Nik225 appears weak and the Shanghai is not bouncing as she should. Things are not all as they should be in the world of risk but price can confound and chop up here before markets really correct meaningfully. Its one thing not being a buyer but are there meaningful net sellers yet?
Recall this now infamous quote from the hedge fund manager Hugh Hendry end Nov13.
“I may be providing a public utility here, as the last bear to capitulate. You are well within your rights to say ‘sell’. The S&P 500 is up 30% over the past year: I wish I had thought this last year.”
Indeed.
With this quote ringing in our ears, here their latest report:
On the FX side as a note-able move the gbp continues to look very strong though a over bought here. A move to her aug 2009 high vs the usd looks likely at 1.705 and a breakdown of the euro vs gbp of the .82 level. For now its strong sterling which from the macro side will not derail the uk economic recovery as its domestic consumption based, for now.
To add to the technical comments here Yardeni charts. The put call non averaged is around the mean. AAII remains strong but not overly strong. The Citi economic surprises index spread to sp500 price is still very wide however. A useful set of charts.
All the best
Rich