More Upside Likely for Risk Assets, but Key Resistance Levels Are Just Ahead for Bulls
A uniform message is being sent from the fixed income and currency arenas that match up well with those coming from equities: Enjoy the easy ride higher for now, but get ready for the proverbial "fork in the road."
The Nasdaq is the last US index I wanted to show you here. Even in the bearish scenario, the Nasdaq is sporting a different macro chart – obviously due to the nature of the 2000 - 2002 decline and the subsequent recovery. In this bearish scenario, the Nasdaq is in wave "c & B" higher of a macro ABC correction lower. The difference between the Nasdaq and the other two indices lies in where the "a's, b's, and c's" are on the chart. The key here is not the labeling, but rather what the Nasdaq needs to do to conquer the resistance. From my perch, the Nasdaq needs to take out the range of resistance from 3,130.86 to 3,196.93 on a monthly closing basis for the bulls to "win." If the month ended yesterday, the bulls would be celebrating. Unfortunately, we've got another week of trading before the month ends. Just as with the S&P and Dow, a breakout means much more upside while a breakdown / failure would likely mean a nasty sell-off will commence.
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As a responsible technician, I must note that the mid-cap and small-cap sectors of the US market have already easily taken out their previous all-time highs and are sporting very bullish charts. That makes me think that a break to the upside for the large cap indices is entirely possible if not likely. On the other hand, the charts of the iShares MSCI EAFE Index Fund ETF (NYSEARCA:EFA) and iShares MSCI Emerging Markets Index ETF (NYSEARCA:EEM) are nowhere near their all-time highs and are acting as a drag on diversified portfolios around the globe. As usual recently, there's something onto which everyone can grasp.
Now, let's move on to my normal weekly focus: the global currency and bond markets.
Here's a Look at the "Risk-On / Risk-Off" Messages From the Currency and Bond Markets:
As you'll notice below, the messages are mixed in the short-term but leaning more bearish on a macro basis. This fits well with the bears' theory that there's a bit more upside in risk assets in the short-term, but that there could be a correction just around the corner. The good news for the bulls is that nothing here is set in stone and the "neutral" and "risk-off" macro messages from many of the charts here can be flipped over the "risk on" if the global major players decide to change their collective tune. Unless that occurs, though, there is some cause for concern on the part of the risk bulls out there – if they were only looking at these charts.
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Overall, my message to you all is to enjoy the rest of the upside to resistance for risk assets. Once we get to the key levels outlined in today's report, it will be time to focus on observing the trading action to plan out our next moves appropriately.
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