2014 has thus far been pretty disappointing if you played for a bullish continuation from 2013.
Most sectors and intra indexes have struggled. Following on from the last 2 weeks more positive price action the Dow Jones is back to her 2014 opening price. The Nasdaq, as of yesterday, scrapped just above her 2014 open but has a trend breakout inc the Russel and NYSE. The SP500 has been a pillar of strength throughout 2014 albeit at around her opening year levels. As of the last few days she has now achieved a new higher high and has momentum. On a general level US equities remain bullishly intact with lead sector indexes like the SOX and the Dow Transports in breakout and much higher than their 2014 opening levels indicating that there is more to come for the wider market.
Hugely important sectors remain under performers and are not confirming the cyclical recovery we would expect to see. Notably the US finance sector which is still below her 2014 opening level as well as the HGX, housing sector index remain much weaker than we might expect in a normal recovery process. On the positive side both sectors have not broken down yet via price and if they can add a little weight here and see buying support and key reversals on sell off days this would provide a buy signal to reenter these sectors for a bullish continuation.
One of the great areas for market strategists allocators for 2014 has been the question of whether we will see the usual pattern of end cycle commodity out performance. The clouds to this usual pattern have been the ems, which have and still are struggling, in great part due to China. In spite of this the commodities continue to see very strong price support. In relative terms to their lead correlated indexes like the aud and like the shanghai they are very strong. So, for my own book, i remain a buyer of commodities albeit with limited cash and futures leverage exposure playing “long range” end 2014 early 2015 call options instead, for now, until the case has more price evidence.
Not a bad comparative chart to follow the sector theory allocation strategy here is the sox vs crb chart.
We can clearly see the battle between the sox (as a lead for US equity indexes) and the crb as the composite commodity index is under way. We would expect to see that if this recovery is a usual monetary lead recovery then equities will begin to drift, late cycle and the commodities will start to out perform just as they did in 2007 2008. The recent 6 month price action began to confirm precisely this. However we now have another new high in the sox, dow transports and price trend breakout for cyclical indexes so we are back into a crb bullish wait and see mode. There are plenty of non confirmations here for the commodity bulls including AUD potential breakdown, Shanghai weakness, UST making fresh 2014 highs, yield lows! etc, etc. For now, the weight of evidence, especially given the new breakouts for equities means keep the commodity allocation at a very low level. (Which i am following for my own book).
Oil Sector index and Copper sector indexes have been strong of late and rather than chase i am personally taking a little profit on these sectors to bank the profit rather than chasing although both remain in breakout and are buys upon a near term correction. Some components may show good buy signals in the next few weeks, should the indexes take a hit, inc Total as an oil and gas example of out performance and recently a corrective under performance.
Without more delay to the Swiss team.
They repeat many of the same themes we observe and comment on, which I take as a positive confirmation of our practice. To give them credit they bring to the party their cyclical model which forecast a summer peak with a target of 1970 on the sp500. This now looks very achievable to me also. purely from price and intra market work.The interesting markets remain the nik225, JPY, AUD, CRB, Shanghai, and the UST.
Without delay here their latest report:
On a personal note, apologies for the delay once again. The last few weeks have been a holiday for us. The next month its back to work so expect more intensive and regular updates from here on in.I’ve been gald for the holiday but its back work and luckily for my own book my timing is likely on the money.
All the best guy and remember “make hay whilst the sun shines” is not a bad moto to follow on both sides of that trade.
Cheers Rich