Hi Guys,
We have, as expected, the bounce in risk assets off the 200dma lows across the major US equity indexes. As we look across US equities we see the bounce in the cyclical themes stronger than non cyclical. Eg the QQQs and finance, soxx, etc have scored higher retracement levels than the wider Sp500. The transports remain weak as do defensives with barely a bounce being scored in this higher rate environment. The global reits again a very weak – beta bounce all feeding into this higher rate and inflation forward environment.
Having said that we have greatly increased selectivity with a few new higher highs and close to new highs being scored in some tech issues (Now) and banking indexes (KBE) and issues (BAC). We remain above the 200 dma on prior excellent breadth. One more attempt at a new high inc momentum is a very likely event so its a little early to get too bearish here.
World equity risk looks a lot weaker than US riisk with barely a bounce in the nik225 and many of the lead cyclical indexes like the mib or ibex35 or even Dax looking exceptional weak on a relative basis to Us cyclical risk issues. Many European indexes already scoring lower Jan highs vs last years highs. Even the US$ adjusted Euro Stoxx 50 (FEZ) its been a brutal sell off and the rebound hasn’t made it over the 50 dma yet. We are caught for now between the 50 and 200 day ma in this difficult price area.
On a longer term scale many European indexes failing to really breakout of their near 20 year ranges and placing them firmly within a historic 20 yr secular bear market. Europe’s stoxx 50 peaked out (in euros) in Jan 2000, a lower high in 2007 and another lower high in 2015. Japan’s nik225 performance would be the only developed market modern day comparison. Something is deeply wrong in the European economy.
On other matters US$ adjusted we can relative strength from issues like copper with marginal new euro highs as one example. But before market tops and bottoms its worth remembering that price can provide mixed messages as asset markets adjust to a change of cyclical trend. It takes time for normally highly correlated instruments cross market to adjust evenly to the change of trend. Wide std from the mean for selected instruments and markets can occur at these moments. Perhaps this is exactly what we are seeing here. So be careful on mean reversion trades at this moment! Audusd weak and likely to weaken.
FX markets wise, we have fairly constructive patterns all round for US$ strength. EurUsd, UsdSgd, AudUsd, GbpUsd, Its easy to see how renewal of US$ strength appears increasingly likely here.
So here without delay the swiss team’s latest report:
And here GS
And here UBS MM Tech:
More of a long term report from the other UBS team here. Longer term of course the recent over reach is clear and the retracement levels for mean trend reversion also clear. An interesting correlation is price to money supply on these long term charts but more on that another time.
Here Needham with their fairly bullish tech view :
All the best for now guys.
Rich