The latest CB leading indicator summary looks unequivocally strong:
US economic surprises are also positive and in an uptrend:
However Eurozone economic surprises are conversely in a downtrend, and the relationship shown below suggests this disparity is the dominant factor in the declining Euro v USD FX.
If we look at Eur-USD together with other specific pro-risk proxies, namely the MSCI World Stock Index, the CCI Commodities index and 30 Year Treasury Yields, this is the picture:
The collective trend was up from November to the end of January. Since then it would appear that we have been in consolidation/correction mode – and this is a fit with the 5-models-in-alignment (see my Tools For 2013 post).
Currently, cheap and unloved assets are Euro, coffee, sugar and gold miners, whilst those reaching into overbought and overbullish zones include the US Dollar, Dow Transports and SP500. If we look at the bullish percent over call/put ratio for the SP500 we can see that we have been recently oscillating in the frothy zone which led to a swing top twice in 2012. However, 2010 and 2011 show things could potentially get frothier, with spikes up to 150.
The CCI Commodities Index and crude oil are both into the noses of large triangles, suggesting an imminent break out one way or the other. Here is crude:
Crude has accelerated this last week with good momentum, but now encounters resistance. It does not have fundamental support from stockpiles, as they continue to be above seasonal average, but I suggest it is the global growth story that is the main reason for the advance.
Meanwhile, coffee, sugar and some other agricultural commodities are at secular bull rising support, which also puts them at a key decision point – either a break down or the start of a new upleg. I still believe the greatest likelihood is of commodities taking off and becoming the outperforming class going forward (based on sunspots, secular history, late cyclicals), and I am positioned accordingly. However, I continue to wait for specific supporting evidence to confirm this, namely a new high in sunspots, a technical break out in the CCI, and for any pullback in stocks to be counter-accompanied by an advance in commodities.
This Saturday is the start of the lunar positive period. Is there a ‘highest probability’ stock index trade on offer? Well, there is now a clear change in the geomagnetism trend, as shown here:
A lower low and a lower high means the geomagnetic trend can no longer be classed as up. In addition, there is some frothiness in stocks as identified above. Therefore, as per the make up of my highest probability trading analysis, I am not going to take this one.
I am now back in England.