Weekly Technical Comments – “S&P1400 Likely but don’t Chase the Rally”

The Swiss team are where they were essentially. They have revised up their near term S&P target but remain very cautious on the rally and advise not chasing. They maintain an end of Q1, early Q2 top followed by a resumption of the cyclical bear. “From a cyclical perspective, May to July
should be weak for risk assets”.

Personally, I’m less certain that they are of this near term top. Technically we can all agree that the trend line is very steep and volatility has been very low. Its over bought according to mathmatical formulas. But, to my mind this is entirely possible within a negative interest rate and money printing environment. We must be careful not to be trapped by prior metrics eg the Mexican and Zimbabwean equities markets showed overbought conditions beyond prior metrics for years. (So we should logically also anticipate this occuring in DM equity markets). For now, price and fundamentals are confirming high prices so im sticking with it. Some sectors look to be about to breakout here and now inc the very important banking index. BKX or as the etf KBW. (Possibly a contrarian top indicator just in. The ‘Breakfast with Dave” Rosenberg’s newsletter has started to mutter more positive sounds. If, even, Rosenberg is starting to become bullish pehaps things are close to a top).

They also cover the “rush” up in the USD vs the JPY and the rise in the Nikkie with some useful technical comments. I’ve held a very large position borrowing Jpy to invest in equities in the US and Japan. I’m extremely bearish jpy and bullish japanese equities but the usdjpy trade has moved a long long way very quickly so some profit taking on this seems wize to me. I mention in passing one small technical issue as some reports have sighted large shorts in the jpy etc as evidence of over sold. I partially agree and near term we are likely to have a top soon but i also wouldnt get too hung up on commercial (leveraged) net short positions either. The JPY vs USD pair are a large cash pair due to japanese cash savings and bank reserves. These can influence price greatly. This cash exodus is not in any market report and it is significant as regards this pair more than most.