This year’s divergence between the S&P500 Consumer Discretionary Index and the main S&P500 index is a bearish signal for stocks, according to Riccardo Ronco at Aviate Global. Such a divergence also took place in 2000 and 2007 and suggests the main index is anticipating a decline in consumer activity.
Spain, Italy and Portugal bond yields are too low and are poised to top, says Chris Williams at Societe Generale. The RSI for each market are showing extreme overbought conditions with significant trendlines also about to be tested.
The strong rally in the Bund price this year has produced an overbought condition which will likely lead to a correction in the coming weeks, says Maxine Viemont at BNP Paribas. Meanwhile, the Nikkei stands poised for an upside breakout to target 20,000.
Despite breaking below its May 2014 low, the 10-year US Treasury yield outlook for Q4 is stronger once 2.54% is breached, says analysts at 4CAST. Meanwhile, further losses are expected for EUR/USD following a downward break below its uptrend from July 2012.
The Bloomberg Industrial Metals Index has lagged the BBG Commodity TR Index since 2010 but has now broken out from its relative strength trend, says Riccardo Ronco at Aviate Global. Added to a break of its 50 & 200 day MA’s, this will be a significant bullish signal if July’s highs are breached.
With the S&P500 reaching a critical stage next year testing its equilibrium fair value level, two scenarios present themselves for the longer-term outlook, explains Peter Lee at UBS. One of these will mean a huge sell-off to around 1200 before the bull run continues. He also presents evidence for the continuation of the commodities super cycle.
The completion of a head-and-shoulders reversal pattern in EUR/GBP paves the way for a maximum multi-week target of 81.98/99, says Steve Jarvis at Tradermade. However, such a reversal will remain within the Aug 13 – Mar 14 bear channel meaning underling weakness remains.
An increase in the EUR/USD-DAX Currency-Equity Diffusion Index suggests that the DAX may be ready to outperform the S&P500, says Mike Sacchitello at Stone McCarthy Research Associates. An extreme reading of this index has a good record at anticipating subsequent moves, he explains.
The late July correction is a temporary period of mean reversion for the S&P500, but the longer-term trend remains intact says Maxime Viemont’s team at BNP Paribas. For the 10Yr US Treasury, more downside pressure on prices is expected after the completion of a head-and-shoulders pattern last year.
The S&P500 is set to climb higher despite the recent correction, according to Ari Wald at Oppenheimer. The low level of the VIX should also mean that this correction is more muted than previous corrections both in terms of magnitude and duration.