Has Anything Changed?
The easy part was recognizing that we had an oversold market with extremes in bearish sentiment, which in general is a reliable buy signal. Throw in the fact that you had end of the month mark ups and the July 4th holiday, and just like that or 5 short days later, "everyone" is breathing a sigh of relief (soft patch, what soft patch?) as the equity indices have gone from their 200 day moving averages to the 50 day moving averages. No smarts, no great insight, and some luck. I am still bullish on equities. I have to be as this bearish sentiment thing has yet to play out, but looking around the investing landscape it is clear very little has changed.
Take the Dollar for example. Please! See figure 1, a weekly chart and in fact, the same weekly chart I have been showing for months. Range bound!! The Dollar is trying to put in a bottom and break out, but nothing yet. I would expect this chart to resolve itself in the opposite direction of equities. That is, if the Dollar breaks out, then stock indices break down.
Figure 1. Dollar Index/ weekly
As stated above, stocks traveled this past week -- in a bee line -- from the 200 to 50 day moving average. See figure 1 a daily chart of the SP500. A strong move no doubt, but they are now overbought, sitting at down trend resistance, and possibly having little fuel left in the tank as there were not too many shorts in the market when this rally started (personal Rydex asset data). Stocks look like they will ping pong between the 50 and 200. Range bound, to work off the overbought, would be good for a while.
Figure 2. SP500/ daily
Treasury bonds are mixed. They got shellacked this week wreaking havoc with the technicals; however, my fundamental model remains bullish. So we have a split decision here as well.
Lastly, a monthly chart of West Texas Intermediate crude oil (cash data) shows a market in an up trend; this was the same dynamic observed in equities a couple weeks back. Yes, WTI has been wounded, but being at the lower end of its channel, it isn't dead yet. More on this later.
Figure 3. WTI/ monthly
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