Its been a good week for the reflation trade with Tips achieving a good bounce and the metals once again achieving a high momentum scores. Copper leading the charge of the metals and platinum lagging. The recent Dollar weakness supportive of course.
US equities have seen a sustained bid with many cyclical sectors/indexes overbought on a sustained basis. Given the strength of this bull market wave five it was always the risk that a drift upward by price would be seen and this is exactly what has occurred. Limited signs of rotation as the lead indexes of soxx, transports, finance continue to rise with the move broadening to include industrial producers and even defensive sectors playing some catch up here and gaining a bid and momentum also. This is now a high momentum broad rally across sectors albeit fairly narrow but there is enough here to sustain this rally onward as a wave five extension. (Even NYSE stocks above 200 dma is at a sufficient level to see more extension).
September price weakness just didn’t happen even if earlier in the month the probably was for some price weakness to occur. No move is ever guaranteed. It was correct to position for some weakness in US indexes but as the weeks rolled by the move strengthened and it was correct to adjust 2 weeks ago to the shifting probabilities.
European indexes are playing some catch up here and dollar adjusted we can see the European indexes are sustaining their strong price breakout. Their US$ trend higher is maintained whether on euro weakness or strength. Hong Kong achieved a new higher high last week and has surpassed her prior 2015 high water mark as has the nik225. So positive price signals from world indexes as well as US indexes.
If we are to see a wave five inflationary melt up of all assets then we need to see inflationary expectations rise and leadership should start to be seen in commodity metals as well as financial cos due to rising interest expectations. A few months ago this appeared a less likely scenario but this on the table again. $ Copper has achieved a breakout of her bear trend earlier in the year has momentum now again and is within striking distance on fresh price higher highs which would correlate well to the reflation trade being in motion.
Without more delay here the swiss team’s latest comments:
And here Meisels:
Funding wise the GBP looks a continued good funding candidate vs the EUR but not against the dollar for the next week or two. The USDJPY pair neutral for the next week or two also. Tactically US$ carry for the next few weeks. Given the overbought prices on stocks gold and copper better instruments to hold with borrowed $ than equities imo.
Here a cs chart on the eurusd:
I hope you continue to partake in this historic bull market. Of course its monetarily driven but the rights and wrongs of how it has been created and sustained should not matter to us. We should simply continue to monetize these strong technical trends.
All the best guys
Rich