Weekly Technical Comments – “Buy The Dips on Cyclical Themes”

Another strong (and bullish) report from the Swiss team. I’ll leave the detail to you. Report below.

Regarding my own book, I expected the cyclical stocks to be in the front line of the recent correction but this is not what has occurred. Cyclical themes usually provide a beta to the overall market both up and down but they have remained very strong on downward index moves showing relative strength not weakness. I liquidated quickly but prices did not move significantly to the down side. I therefore re-entered my entire cyclical position at marginally lower prices but I anticipated the pain would be more acute on the cyclical themes than it has been.

Alongside the Asian base formation in Shanghai and strength in some other “EM” indexes this is bullish. Closer to home the Dax and Ftse100 have shown relative strength. Both these indexes are biased to the cyclical stocks. On the safety side the telecoms and some energy stocks have shown relative weakness. Overall this correction, thus far, has provided yet more evidence to the bull side of the equation even as index values fell. Oil has been weak but oil is extremely volatile and can easily show false signals especially on short term interference moves by the Saudis. The US$ index has failed to break out of bearish patterns. The probability remains to the downside for the US$ index.

Overall, sector prices are showing bullishness not bearishness in spite of my desire to pick up cyclical themes at a discount. What we can say is that technically a window is open now for a cyclical lead rally here and now. Much of this will be driven by rotation but some capital is likely to rotate out of fixed income so i don’t anticipate the yielding defenses to fall either. An under performance for sure but falls in value i don’t anticipate. If momentum rejoins to the bull side I’d expect new highs in equity indexes due to this soon enough lead by EMs, Dax and Ftse100.

Without more delay here this week’s report. (Excuse the flash format. This may mean viewing via mobile devices is not possible).

http://www.capitalsynthesis.tech/wp-content/uploads/2012/reports/Weekly30-10.html

Rich