A few weeks ago we read an article on SeekingAlpha titled “The Most Hated Rally in History” or at least words to the effect. That headline sums up everything about the rally in equities since its lows of March. Few genuinely want to believe that perhaps we are in the midst of a bull rally that will extend well into next year. We say “genuine” because any bulls that may have existed just two weeks ago have all but disappeared. Anyone now coming out with bullish commentary on blog sites attracts the wrath of the “masses”. In addition to this there still seems to be no shortage of so called experts making comparisons to the 1930s claiming that this is the start of the next big leg down taking the S&P to below the lows of March!
We could understand this behaviour if equity markets had already fallen by 15-20% over the last month. But the average equity (as per the Value Line Index) has only fallen by 9% since mid October. Furthermore there has been no breach of any support level of significance in equity, commodity, fixed income, and real estate markets and equally no breach of resistance by the USD Index.
Perhaps the nightmare of late last year and Feb/March this year is still to vivid in everyone’s memories and is still reflected in the prices of major market indices. Of course time will tell.
Below are indices representing the major asset classes, albeit what we think are reasonably good proxies for the performance of each asset class. We have tried to pencil in what we think are obvious support and resistance levels. Yes we note the recent weakness but also note that markets do not move in straight lines nor are they characterized by low levels of volatility all the time. We believe that what we are currently witnessing is merely a correction of a short term overbought condition……and absolutely nothing more than that.
We see the recent weakness in equities and commodities as a buying opportunity. Why do we get that feeling that this market is going to move much higher and that what we are seeing now is merely Mr Market’s Morning Tea break!
