Its been a big negative week for risk asset markets with the winner being the US$, but not bonds. The leverage in the market lead to a cascade of selling resulting in a spike in near term volatility. The Friday reversal and successful test of the 200 day moving average has likely put a near term base in the sp500 and correlated risk indexes. The question of whether the Jan high was the top for US risk and or world risk only time will tell. For sure the technical damage now to European risk is severe and price has a mountain to climb to overcome the lower highs and deep under performance vs US and Asian indexes.
US risk now demonstrates constructive patterns long inc the russel2000, US finance, Transports, Nas100 and the semiconductors. All show long patterns and at contrarian buy sentiment levels. The correction was fast and steep but over came no meaningful levels. It equally came after a very strong and wide breath price move. Price patterns across Europe are far more concerning for now eg the eurostoxx50. Equally commodity patterns, eg copper look concerning for the reflation trade, as does the audusd.
The US dollar and yield curve remain key drivers for asset markets. The Swiss teams comments below should be noted re forthcoming dollar strength and its inverse implications but with the dollar basket still relatively low at present and with the 2-10 at 0.8% or so; all appears fine for now.
This bounce should be almost as fast as the sell off. The levels achieved in the next few weeks will be telling. We should not be surprised to see higher high on some cyclical sectors like finance and tech.
So without delay here the Swiss team’s report issued earlier today:
And here the other swiss team from CS:
As the Cs team point out many indexes across Europe appear to have already put their tops in of this cycle. Europe has been major under performance now for several decades vs other risk markets.
All the best guys, I hope to update this issue as a v2 in the coming days.
Rich