Asset Class Cycle Review
Barry Ritholtz (bigPicture blog) is bullish, Bill Gross (PIMCO) says the next two employment reports will decide all, Jon Thomas is bearish (mad hedge fund trader), Mr Market so far has refused to go down. Lets review some intermarket cycles to see what is churning.
Our View: The market will muddle up unless an event stops it. So far mixed US fundamentals and Q1 earnings, China soft landing. Europe is on a ECB put and the US on a Bernanke put. Japan we are not so sure. Remember the only reason the SP500 hit 666 in 2008 was there was no rock solid FED put. Now the word bailout is common.
When might the bailout 'put' fail?
- Spain and or Italy bailout: That's a lot of debt on the ECB, will Germany stomach that !
- Japan, a rise in interest rates will sink Japan [and China] (Karl Bass play)
- China Inflation. Wars have been fought over less in China.
- US, bond vigilantes forcing a interest rates to rise, unlikely as they are busy with Europe.
The next 6 month will see the final stages of the US presidential cycle. Unlike 2008 this is a 2nd term election, all is being done to enable Mr Market to be happy.
Currently markets a holding up, the longer they hold up the better the chance for a fall (June to Oct) rally. The 18% plunge last Aug/Sept 2011 was accompanied by the NYSE Summation Index (Ratio Adjusted) failing to break +500, the next few weeks we shall see if this repeats (NYSI at +200 currently). Will the liquidity be there to push up the NYSE Advances, time will tell very soon?
Until something happens...muddle up...
The Cycles review...
What we see here are some very reliable cycles (with over 80% success rate) showing a challenge to the peak, and thus the threat they could invert. Just like the massive cross market inversion that took place after the 2009 cycle lows of SP500. The bears are short on time, but not out of the game yet.
The reliable Dow Jones Transports cycle: Holding up..bears still have time.
The Morgan Stanley Cyclical Index Cycle confirms the above...
The SOX cycle is a little weaker, but no collapse.
Copper is trying to put up a fight..
The RISK ON SPDR sectors are doing just fine.