Last week was rather constructive as far as a bullish equities, commodities, and corporate bonds and bearish USD and US Treasury perspective goes. To be honest our primary concern last week was the how close equity markets were to significant levels of support, breaches of which would draw into question our bullish outlook. Although equities are not out of the woods yet, nonetheless we can breathe a sigh of relieve for this week at least. With the exception of gold, there were no new multi-week highs registered last week, but perhaps we will get a handful coming through this week.
As far as we can tell (from studying the behaviour of the graphs below and others) the very drivers that powered the trends depicted in the charts below since the end of last year are still well in play. By drivers we are primarily referring to monetary policy or excess liquidity. Accordingly we believe that one should continue to position for an extension of the very trends depicted below.
Equities
A positive week for equities in general and a broad based move to boot! Equities have yet to make another multi-week high but at least they remain well above their support levels. We now need to see the Dow World fall some 6.7% before support is broken……that gives the bulls some breathing space. The bull trend is still in place and accordingly we still expect equity markets to move to another high for the year over the coming days.
Fixed Income
US Treasury markets survived the record sales last week, but there was a lot of resistance to the take up of the long end. To us the long end (TLT) still looks sick and we think that the next move of significant will be to the downside. But it is probably going to take some time to pan out. Junk grade bonds remain within a few percent of another multi-week high; this confirms the strength we are seeing in equities and high yield currencies.
Commodities
Another negative week for commodities and yes a frustrating one for commodity bulls. Has anything changed to challenge our bullish outlook on commodities? We don’t think so. We note that the weakness in the CRB was largely attributable to crude, the equally weighted CCI index (continuous commodity index) closed positive for the week and gold and platinum made multi-week highs and Silver appears poised to break above the 18 level (to trade at a multi-week high).
Currencies
The USD Index had another negative week and is ever so close to a multi-week low. Many are arguing that a bounce in the USD is overdue, well yes perhaps but we feel that although sentiment may well be very bearish towards the USD but if the Treasury keeps increasing the supply of dollars any bounce may well be of the dead cat variety. We will rest easier at night once (if) DBV breaks above the 24 level – this will confirm another multi-week high for the “carry” or “high yield” trade and in so doing confirm a bullish outlook for equities and commodities and high yield bonds.
Into the valley we go again!
Our wealth creation portfolio is up around 21.36% since the beginning of the year with approximately 40% of the volatility of the S&P 500. This portfolio is not leveraged.
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