Risk is bouncing strongly here and particularly so US tech and the mid cap Russel2000. The larger caps (tech aside) are under performing and world indexes are still under performing US indexes over the recent period of weakness. The selectivity is increasing here which is usually a clear indication of weakness inside a rally with Finance and housing badly lagging. Another clear indicator of increasing risk here is the 2/10 spread on the treasuries which is today below 40 basis points. The US$ index appears to be basing to me with the USDSGD (showing a likely base).
The technical damage to world indexes has been dramatic and sustained. Ill leave the detail of levels to the guys below but the 35,500 to 35,800 is a good area to at the least hedge the eurostoxx50. HSI and others have equally obvious levels to achieve.
Commodities have bounced nicely here and although inflation remains benign for now the mix of liquidity and value compression to almost zero yields on most capital assets looks like a good mix for liquidity to find a home outside of risk asset markets ie into the commodities especially gold.
Gold at key levels:
Here the recent reports:
The guys are sticking to their calls of weakness from May over the summer months but note the shift in bullishness for year end. As long as the compression in the spread between the 2 and 10 stays positive this 8 year rally is likely to sustain a little longer.
Here GS maintaining conviction 3 shorts note on issues like the russel 2000 and eurostoxx50. We are over shooting their levels, just.
And here MS with their FX run through. A period of forthcoming US$ strength looks must watched which would correlate to risk off summer months.
And here a nice cycles update with the 38 yr bear market in rates.. (or conversely 38yr bull market in bonds).
Unless the market dictates I’m going to switch to a fortnightly report update here going forward. I’ll be driven by the market on this. There is often no need to update more regularly but when volatility steps up and or we have a key trend change moment on key asset classes, ie usd, gold or sp500 I will of course post irrespective of the timing.
For my own book im back to break even year to date. I have today started to take profits and or hedge. Therefore my cash balance is the highest its been for several years. The technical damage to world risk has been serious and the probability suggests therefore that this is unlikely to be a sharp reversal and renewal of the bull market here. This will likely take longer to work off and so taking profits is the least risk way to go, at least on world risk. US risk looks much better for now though new higher highs will be a challenge indeed given this world weakness. Keep watching that 2/10 spread.
All the best guys
Rich