The seemingly about reversal in world financial markets over the last few weeks has been rather dramatic but has anything changed? We think not. There has been no breach of any technical support/resistance level, furthermore there has not been enough of a lapse of time that would signal a change in underlying fundamentals.
The Value Line remains well above “support” at the 2000 level. Note how strong the Value Line has been relative to the S&P 500. This indicates the broad strength of the market. Whatever is driving equities remains strong, two days do not change things one iota.
The “Old” CRB Index remains in a strong up trend. It is difficult to determine exactly where “support” lies but we would think that if it breached the 430 level it would signal a multi-week low and a clear breach of trend. It is interesting to note that whilst the CCI Futures index has weakened a little over the last few weeks the CRB Spot indices have gone to new highs!
Simply put (no pun intended) the US Treasury market needs to do a lot of work before breaking its down trend. We are still of the belief that the next leg down in treasuries will be large because once TLT trades at a multi-week low the yields on the 10, 20, & 30 yrs will have moved to multi-week highs and we all know that selling begets selling – although in this case we think that it is fundamentally justified.
We remain bearish on the USD in general, but have to concede that the USD Index conceals a lot. The strength in the USD Index is primarily a result of the breakdown in the Euro. I thought we would never say it but we would rather hold USDs than Euros!
Against all odds the Real Estate Sector remains one of the better performing sectors. We don’t expect that the weakness currently occurring will transpire to anything material.
Until proven otherwise broad macro trends that took hold in late 2008 remain in place. Go counter trend at your risk!
