There is an air of disbelief from all parts of the market. Many are having to remind themselves that the S&P 500 and Dow Jones are just 2.4% from taking out the May 19, 2015 all-time high. It just doesn’t feel right, but I was always taught that an asset at all-time highs, or even 52-week highs, is outright bullish and should be traded as such – but no one believes we are here. So many in the market are clinging to the Q1 macro concerns (China CNY devaluation, low oil, low growth/recession, NIRP concerns and deflation fears) that they have missed the move higher. Depending on if one has to benchmark themselves to an index determines if they are now chasing this move higher. While structurally bearish, how do you justify to clients you are down 5 to 10% (perhaps more) when the S&P 500 is now positive for the year? While trend followers have been in the market for a while, investment managers have to be involved regardless of how much they hate buying.
The fact that inflation expectations (as measured in the bond market) have not budged despite oil rallying to $40, bulks going nuts and financial conditions improving (higher equities and credit and lower volatility), seems key. Credit spreads have collapsed, emerging market assets are on a tear and the iShares MSCI World (NYSE:URTH) is 9% from its all-time high. Yet at the same time, the July Fed fund futures have not moved from the implied 4.5 basis points (or 18% probability) of tightening priced in for the June FOMC meeting. This is huge, and as long as equities and credit are rallying and interest rate markets are not increasing, the prospect of near-term tightening from the Fed to an equity or credit trader is music to the ears.
Throw in an improving China picture and signs that monetary easing and fiscal policy are having an effect, and the result is a daily chart that looks like a breakout trader’s dream on many markets.
S&P 500 – Eyeing the May 2015 downtrend at 2096. How the index acts around 2096 seems pivotal, where a closing break and the all-time highs come into play.
FTSE 100 – Overbought, but this is a reflection of the strong uptrend.
iShares China Large-Cap (NYSE:FXI) ETF – Stay long until proven wrong.
DAX – Finding buyers with help on weaker EUR, but price needs to close above supply at 10,100 (blue rectangle area). A break here would naturally be outright bullish.
ASX 200 – No real concern about today’s employment data, but the short-term move has been backed by reasonable volume and good breadth. No break out here, and we are going to need to see new news to take the index through 5200.
