Euro asset markets have bounced off some key technical levels (especially euro equity indexes) which has been important to at least halt this recent weakness. US indexes like the dow and sp500 have made new record highs, albeit with low momentum thus far. Technical issues remain of course like breath divergences as well as lead index lack of confirmation and weakness ed Dow transports.(See Fitzpatrick’s comments on this below).
Here a chart of the sp500 inc 52wk highs of individual stocks. Its weak and the problems are increasing in terms of tech divergences.
Euro rates have subsided a little (Spain 10yr back down to 1.75% from 1.9% a week or so ago) given some timely and soothing comments from the ECB. FX wise the US$ is bouncing, as expected. The euro must remain weak given the front loading ecb qe action as well as the persistent Greek issues. As less than 2% of the euro economy the greek issue is by many pulling the euro down by as much as -5%. A mis price given how non systemic Greece now is to the eurozone? I don’t know but on news of a grexit, although the initial move will be bearish a short and sharp reversal may soon follow. I hold, now in money, option puts with a strike at 1.125 expiry early june to capture the asymetric trade opportunity a grexit presents.
Overall expect a weak continuation of this bull market, for now.
Beyond a near term technical continuation, its hard at a macro level to see where new buying momentum can come from to provoke a new leg to this tried bull market. Much of the last 35 years of dm economic performance has been achieved via domestic housing bull markets. Its no accident that the best performing DM economy is the uk where house prices continue to be the alpha asset class. Strong housing equals strong consumer demand and ms growth. Unfortunately the US housing market remains weak.
And money velocity is hitting new lows in spite of the zirp strategy employed by our policy makers.
Back to the tech the Swiss team are taking a well deserved holiday this week so a shorter list than usual this week.
First up Fitzpatrick from the end of last week:
And here with a supplementary on the dow transports issue:
And here GS with their tech charts:
Note GS are now down one single cross asset market trade and that is long euro stoxx50. That’s the first time i can recall GS down to one high conviction trade. Telling in itself.
Here a very useful, if you can take the time, report from Commerz, cross asset market correlations, performances and fund flows.
And here Cs with their tech chart pack:
Here MS with the excellent FX report. I have to say I have exactly the same stance re so many of the trades and levels contained in this report, if that’s of any note.
More coming in the next few hours..
Here RBC and Commerz on the macro:
And here Yardeni. The divergences between the Sp500 and economic performances are worryingly large.
Here Facset with yet more divergences. This time between equity prices and the dismal earnings which are equal or lower than last year non share adjusted:
As a final comment, NYSE leverage levels have broken out again after a plateau and investor sentiment via the AAII survey is very neutral at present. Optimism set a new 2-yr low for the 2nd week running in the latest AAII Sentiment Survey. Neutral sentiment stayed above 45% for the 6th consecutive week, tying a 27-yr record, while pessimism declined slightly. Indecision and neutrality is generally a very good environment for a continuation of the prevailing trend.
Rich