Good morning traders,
- Rather than clouding the picture with a lot of potentially superfluous information this morning, let’s focus on the key divergence in the US market. The chart below shows the divergence between large caps and mid caps in the US market, illustrated here via S&P 500 and Russell 2000 cash indexes, though the exact choice of index is not important. What is important is that midcaps are at a crucial structural point. Clearing this resistance decisively could lead to another leg up, regardless of how overbought or overextended anyone feels this market is. Failing here could certainly lead to a 1-3 week selloff across the board. I do still think the market is vulnerable to a potentially outsized selloff in response to the slightest shock (headline risk), but it is obvious that the bulls are firmly in control. Don’t fight the tape.
- World equities are mixed this morning. Asia slightly down, Europe slightly up. UK indexes touched new 52 week highs early in the session before backing off, but no significant move in any world equity market I track.
- Also no large moves in forex. Pound is weak and Kiwi is strong, net impact to USD index is slightly negative, but nothing overly interesting happening in any of these markets.
- A little rotation in the metals this morning as Copper backs off but the precious metals pick up strength. Gold is up 1.1% in early trading. Again, move long, probably nothing interesting to see here.
- Energy is generally soft this morning with London Brent and WTI both down 1.2%. This could be an important theme today with some carryover to energy sector stocks.
- Foods and Softs are down slightly in early trading.
- A number of more interesting earnings stocks today. Sector and Broad Market plays will continue to be difficult until the market picks a direction out of consolidation, so watch small and mid caps for confirmation of any directional move. Don’t anticipate and get chopped up too much trying to position for a move that may or may not materialize–it is usually better to wait for the first move in these cases and then position for the followthrough. If there is no followthrough (which has certainly been the story for many days), the move was probably fake and due to fail and reverse.
