A little rally in US equities Friday-Monday, keeping the market in bull-bear limbo. Volume was bearish, relative performance in defensive sectors was bullish. The bigger picture remains the same, with various divergences suggesting bearish resolution. Shown here is high yield versus treasuries, new highs / new lows, and consumer discretionary versus staples:
On the flip side, leading indicators point to a pick up in the global economy as of now through the summer, which coincides with the more supportive geomagnetic seasonal period, and economic surprises have turned upwards in the US and Japan.
So far in May, sunspots look set to continue their monthly waning trend from their peak in February. Should this continue, not only should the excess speculation be pulled from stock markets, but the ‘growthflation’ in the economy that typically peaks around the solar maximum should also ebb. In other words, the stock market and economy should fall together.
We currently see various commodities at key decision points, in the noses of technical price triangles, such as oil and silver. Are they going to break upwards and outperform as late cyclicals as equities turn down, or are they going to break downwards as deflationary post-solar-maximum forces take over? Either way, their predicament is suggestive of a big move ahead in assets.
Returning to equities, whilst I cannot rule out higher prices in the near term, the stronger case is that the markets already peaked out and that stocks tip over again this week. Should that short term prognosis prove false, then the medium and longer term cases are unequivocally bearish, and so I stick with my strategy of selling into strength. The safety is on the short side, time is ticking towards the elastic band snapping in large caps.