Friday Roundup

Yesterday’s action was bullish for pro-risk. The Nasdaq completed its successful backtest of key support by launching away from it. Oil completely reversed its heavy losses of the previous day. The Dow Transports pulled further back up into the range, making the recent drop out of the bottom look like a fakeout.

Source: TSP Talk

The Hang Seng has broken out of its long term triangle, to the upside.

That breakout is still tentative, but other Asian indices echo this, such as the Kospi:

Source: Bloomberg

Now let’s see if the Shanghai index can follow through on its tentative trend reversal next week, that it began before this week’s holidays.

The Baltic Dry index yesterday pulled another 6% away from its lows, and copper has recently broken out of a triangle to the upside.

Source: TradingCharts

And the US dollar broke down from a bear flag.

Source: TSP Talk

All in all, the picture is currently supportive for pro-risk and for reflation. Both AAII and II investor sentiment turned less bullish this week, putting both further neutral, and not indicating a top. So whilst there are a couple of topping flags for US equities, as noted in the last post, I don’t believe that’s enough at the moment to bring about a reversal here. Rather, if reflation is just getting going, and if Asian equities are just breaking out, then it seems more probable that the rally endures for some time yet.

Lastly, Yardeni’s fundametals versus stock market divergence in the US has now been partially resolved with the fundamentals turning up to point the same way as equities.

Source: Ed Yardeni

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5 thoughts on “Friday Roundup

  1. Hi John. For the Norwegian index I am now getting pretty good signals that we had a 2011-2012 bearmarked that now is over. It was a sideways (triangle) bearmarked… but still need some more confirmations, like the AD-line breaking up, and the small-caps index to wake up.
    So we should continue up into 2013, perhaps even into 2014.

    This is what my 6month cycles look like:
    spring 2007: bullish
    fall 2007: bearish
    spring 2008: bearish
    fall 2008: bearish (collapsing)
    spring 2009: bullish
    fall 2009: bullish
    spring 2010: bearish
    fall 2010: bullish
    spring 2011: bearish
    fall 2011: bearish (collapsing)
    spring 2012: bearish (but only partial)
    fall 2012: bullish

    So I guess you were right all the time 🙂
    Only thing that could change it, is a crash the next weeks… which seems very unlikely. So at least uptrend into March-April.

  2. Eurodollar COT indicator’s showing interesting developments. It has so far supported the current rally into the November elections, from a low in June. However, I’ve tried to find the most recent graphs, and they seem to indicate a major event around January 2013, based on a sharp decline on the indicator back in January 2012.

    http://www.wallstreetcourier.com/v/cot-interest-rates-3-month-eurodollars-cme.htm

    To see what I’m talking about, check the net commercial hedgers line on the first graph. This possible January 2013 drop seems like it might spell out a stocks drop as severe as August 2011. The indicator then bottomed by mid February 2012, so a rally back by February 2013 is possible. The peak is to be found back in roughly December 2011 (meaning December 2012). Based on this dating, the fiscal cliff might be the thing to trigger a major sell off in equities, but QE to infinity might soothe markets to rally from February onwards.

    My guess is that the winter we’re about to enter will be very choppy, as America votes and people get agitated about whether it will deal with its debts. The fear may subside when the crash is over, to support the new rally. There certainly seems to be no clear strategy for the US to deal with the tax rises, with just 2 months to go, so I’m beginning to assume that it won’t. Would like to know what everyone else thinks.

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