With the Sp500 making new record highs and being joined by most of her sub indexes/sectors (Russ2000, transports, soxx, nas100, etc, Sector wise check US housing which is back on fire to the upside). We can see this increasingly selective wave five extension has not paused, September or no September and in spite of the recent US$ price bounce. The drift ever upward has sustained. The low volatility, narrow breadth, price drift upwards without corrections along the way makes for a very dangerous market going forward into Q4 and then Q1 2018. For now the party continues with the reflation trade intact again and to my mind the end cycle melt up in all assets remains on the table.
European indexes have been the more volatile + beta over the last month or so and dollar adjusted their breakout remains intact and appears ready for another move higher. (Due to the geo politics in the Iberian peninsular what should have been the + beta to the euro stoxx ie the ibex35 has become the disappointing – beta to all. An asymmetric trade on the ibex35 presents therefore as a mean reversion gap close).
For my book the FX moves have been very supportive again for the bottom line with the bulk of the carry for leverage being funded by a sterling carry most recently. Commodities producers rejoined their bullish trends a week ago or so with the underlying commodities, like copper finally getting momentum upwards back today lagging the insider buying in the producers.
I have no shorts now at present but remain more heavily allocated to non US markets for now. I need a price correction or the technical likely hood of sustained US$ weakness to increase allocation to US assets from under weight present levels. Measuring my account in euros i am seeing daily new record highs again. Its proving a very strong year following on from an exceptionally strong 2016.
Its not a cross asset melt up yet but as the ‘this is a one way bet’ mentality spreads, its getting ever closer. When the herd of dumb capital move in to liquid risk assets it will be time to get out and that’s not quite yet.
Without delay here the reports:
The guys remaining near term bearish US equities but with a shallower and later pull back that anticipated. The narrow selectivity ie weakened breadth not improved.
And here Fitpatrick:
And here the ground up US equity technical UBS report:
All the best
Rich