Another week rolls by.
Asset classes, sp500 and nas100 aside, are confirming the bearish macro landscape for risk assets and continuation of the cyclical bear. Without a new price breakout by key US sectors and indexes the issue remains a timing one for when the bear across all risk assets will resume. Indeed if the sp500 and nas100 key stocks were all 5% lower than where they are currently the global prices across risk including global equities, fx and commodities would all make sense and the macro jigsaw would be complete. As it is the sp500 and nas100 with their key components remain elevated and indeed breadth has confirmed their recent price moves. The dollar index has assisted a little as she continues to move lower driven by the de-leverging recent strength of the two major carry trade currencies ie the euro and jpy.
For my own book this non confirmation by the key US indexes is preventing a large allocation or an aggressive allocation against risk on. The confirmation is missing and until this comes I am limited on the allocation.
Trading tactics wise. Is it possible the key US equity indexes push higher here? It is of course but without global risk assets joining the move the upside is extremely limited. Therefore tactically speaking, is it possible that European and Em risk assets can drop lower even as the US equities push higher? This is extremely unlikely (a ultra low probability) so, therefore, if you are short tactically taking longs on long term correlated instruments to US risk appears a good idea to me. On near term time frames this correlation has inverted. The snap back could be significant therefore and is likely to be the + beta if US equities do manage to push higher.
Ill leave the analysis to the team. The guys run through the various indicator clues as usual with earnings season before us.
And here GS
And here Fitzpatrick
and here ms on the fx
All in play..
Rich