By David Llewellyn-Smith, founding publisher and former editor-in-chief of The Diplomat magazine, now the Asia Pacific’s leading geo-politics website. Originally posted at MacroBusiness
Citi is in no doubt that retail has it right:
• The DJIA posted a bullish outside month in April. This is only the 3rd time that has happened since the 2009 lows (July 2009 and October 2011 being the other two). The S&P barely missed a 4th bullish month since the 2009 lows (Needed to close above 1883.97 and actually closed at 1,883.95) and the 2nd this year (February being a bullish outside month in the S&P).
• In addition the chart of the VXN (volatility of the NASDAQ) suggests that lower levels of volatility and a higher NASDAQ are also in prospect. In addition the VIX (volatility of the S&P) may well set new trend lows.
• On top of this the Dow Jones Utility Index is testing the all-time high and the Dow Jones Transportation Index has posted a record monthly close.
• While this bull market in equities is stretched at this stage it does not yet show the classic signs of a bubble top. We continue to preach “skeptical participation” while believing that an improving, self-sustaining economic recovery (despite yesterday’s GDP number) will be supportive for the Equity markets in general in the months ahead.
• While there is no doubt that some individual “high flying” stocks (NASDAQ and Biotech) have suffered some severe down moves it does not look to us that this is a broad based turn but rather a “rotational” move.
• The broad based indices (S&P 500, DJIA, DJ Transportation) all continue to look constructive and even the NDX looks set to recover its losses.
• Despite the poor GDP “print” yesterday we retain the bias (As per recent Techamental pieces) that a “self-sustaining” recovery in the US economy is actually building and that Q1, 2014 will turn out to be just a “bump in the road”
• If this is correct then we would expect that the broad based markets will continue to post higher highs in the coming months and that “Buy in May is the Equity play”
With respect, since when was a rotation from growth into defensives like utilities and transport a good sign for the underlying cycle? Trees meet woods.
Bonds agree with the 30 year still rallying hard despite a solid ISM print at 54+. Yields hit a clear new low at 3.4%, down 1.5% on the night:
That could be a bullish falling wedge pattern forming, or just a channel down! The 10 year also rallied hard, the yield dropping 4 points to 2.6% and right on its support line within a clearly bearish descending triangle pattern:
Equities look more dumb than smart to me today.