Another bullish day yesterday for pro-risk, and we are now at dual resistance on the SP500:
Source: TSP Talk / Decision Point
Yesterday was the new moon, and downward pressure now emerges on my lunar geomagnetic models as of tomorrow.
We also see short term overbought signals that suggest a pullback is required, such as on the Nymo:
It gives us a set up whereby today’s FOMC could disappoint the markets, because of the trio of short term overbought, technical resistance, and lunar/geomagnetic down pressure as of tomorrow.
Now let’s just step back a moment and see the bigger technical picture.
Bullish percent and put/call ratio are down at the low extreme still, suggestive of a more enduring rally.
Hulbert Stock Newsletter sentiment is at the low extreme level that suggests a more enduring rally also.
Source: Hulbert / Sentimentrader
A spike in bearish ETF volume is synoymous with previous important lows and significant upside ahead.
Source: Sentimentrader / NYSE / Bloomberg
The recent pop in insider buying is suggestive of the market rallying ahead, as this smart money historically calls it correctly.
Source: Insider Score / Technical Take
And a low extreme followed by a new upturn in breadth also reflects important previous bottoms.
In short, the technical picture for US stocks is bullish in a multi-week/month timeframe. So, if a short term pullback comes to pass, it is likely to be followed by further upside. If we draw in recent oversold/overbearish extremes in global stocks, commodities and the Euro, and the recent parabolic rise in treasury bonds, we have further support for an enduring move out of safe havens and into pro-risk.
Yet, the global macro picture continues to deteriorate. Economic surprises continue their downtrend and don’t display a pull-up ahead of a stocks rally, as we have seen the last couple of years. Leading indicators continue to decline – yesterday Australia came in at -1.4% (Conference Board). Euro CDSs continue to flirt with records.
As I previously stated, a mean reversion rally away from the oversold/overbearish extremes in pro-risk was likely to occur, regardless of the outlook, and we are seeing that currently. Either leading indicators and economic data start to improve and pro-risk does more than just mean-revert, or mean reversion then gives way to further declines.
US earnings begin again with Alcoa 9th July. The recent off-season beat rate has been almost 80% which suggests we may see a bullish earnings season.
Presidential cycles are supportive of upside into the US November elections, but that is largely because the President creates a positive backdrop into the elections, with concrete actions and also data spin. We start today with the FOMC and see how supportive the outputs are. Meanwhile, European leaders still need to do significantly more if they are to diffuse Euro CDSs. China also appears to need to do more to stimulate and other countries also.
Agricultural commodities had a bumper day yesterday, as concerns over the hot dry weather came to the fore. One day doesn’t make a trend but data shows that commercials were taking positions, not just speculators. I believe June and July’s climate data will really determine whether or not we see a major H2 rally in soft commodities this year.
I am going to take a couple more pro-risk profits today, selling into the strength before the unknown of the FOMC, but still retaining the vast bulk of my pro-risk positions. As I stated above, there are reasons for a short term pullback (unless the Fed really goes full-stimulus, which I don’t believe they will).
Thereafter I remain of the view that the speculative push into the solar peak of 2013 will occur. As noted above the technical picture for Euro, dollar, bonds, stocks and commodities very much suggests an enduring rally should emerge here. I therefore believe slightly less bad news in terms of leading and current data and developments is likely to spur pro-risk higher, i.e. it doesn’t have to be great, just better. I also believe we are in the midst of another period of global central bank easing and stimulating action and that we will see further rate cuts and credit easing actions and the like.