Its been another superb week for risk assets with many US sectors starting what appears to be fresh momentum breakouts in a market that has momentum and volume. Whether it be sp500 for nasdaq100 breadth is once again confirming the move. Price is true and trading entries are working well due to the combination of broad market participation in this trend. This is a typical high momentum early stage wave five move. But, as the team ask, is this latest move simply a false breakout or a genuine start of a ‘melt up’ scenario?
To mind we cannot know. I have been involved in many melt up charts in my career and you never know when they are to occur. All you can do is take the price entries and reverse if price reverses. For now price is “true” at present, as said, so the trades can be executed fairly cleanly without much ‘chop’ occurring. This is all i can add here.
The cyclical inflation correlated indexes of Tech, Finance, Commodities are the alpha indexes. The Russel2000 still promises much if she can join the breakout with renewed momentum.
The global risk laggards of Europe and Asia which have seen long recent cyclical bear mkts have a mean reversion catch up which is showing signs of coming to life. Even in US$s.. eg FEZ. A global melt up is a possibility in 2017 early 2018 therefore.
Commodities continue to show great strength as globally inflation starts to increasingly show in the data. US inflation expectations are established but failing to break out as yet. Tip.
The US$ shows a good chart setup for a continuation of the US$ bull but she is not getting momentum here yet and the move is starting to look weak and fade. Waiting for more price evidence.
As a side comment, sector wise within US risk the housing indexes are not confirming yet, XHB, IYR. They are lagging and are potentially showing signs of topping out here. Housing is a risk asset class that in my view needs to be watched. Globally its been a alpha risk asset class for a decade or more but higher rates and lower disposable income for the middle classes as inflation bites will provide some likely headwinds to the asset class. Like bonds, housing is a global capital investment asset. If it doesn’t provide a capital gain capital will flow else where and perhaps into global equities, I suggest.
Without delay here the reports:
And here Fitzpatrick doubting the recent inflation, near term.
Here RBC on commodities:
Here SC with their FX run through:
Of course we must keep an eye on positioning here. Certainly room for the US$ to run. The setup is in place from various perspectives. A failure to push on therefore would be telling. Here scotia on the cftc.
Just keep taking the signals guys.
All the best
Rich