Surf’s Up, So Ride The Market Wave
Today, BMI’s illustrious Key Markets View portfolio welcomes four new members – Long S&P Financials, Long Brazilian Bovespa, Long Korean Won, and Long Zambian Kwacha. There may be more to come, because there are still a lot of opportunities across asset markets. Have a look at a long-dated Nikkei chart, or some of the industrial metals contracts, which are all benefiting from the resurgence in sentiment and the possibility of a rebound in global trade in the latter part of the year. Pretty promising. I note, shamelessly, that if you want to know more about these views, check out BMI’s online service, or our shiny new monthly publication, Global Macro Monitor (it’s good, trust me).
Why so many big, bold views, and why now?
Dedicated Risk Watchdog readers will know that technically speaking, my colleagues at BMI believe that further upside is ahead for the Dow (to the 10,500-11,000 area), while downside is ahead for the US dollar. Both of these are good barometers for risk appetite, and as a result, the overall market bounce can be sustained for a while. Furthermore, the strong reversal pattern in March on the monthly charts still stands out as a sign that a long rally could be in store. The key for us now is that many assets have broken through key resistance, which indicates that the uptrend should stay in place for some time. One of these is the S&P Financials index, which has, after two months of consolidation, blown through the previous 2009 high of 175.84 set back in May. Now, 280.00 or even 300.00 would not be out of the question.
A strong economic bounce in H209 is increasingly likely, due to inventory rebuilding and increasing signs of stability in the US economy from a low base. So through the end of this year, economic activity figures, and earnings, could continue to surprise to the upside, lending support to markets that were very oversold in the first place.
Readers should keep in mind that even with this rally, the S&P 500 is still trading around levels that it originally hit back in February 1998. The case can therefore be made that the rally is the result of a market realisation that stabilisation has returned, and we have avoided a full-blown Great Depression scenario. I would have to agree with that fundamental outlook.
As ever, my colleagues and I will be reassessing the outlook on a regular basis, as we are still sceptical about the long-term sustainability of this rally. For now, keep riding the wave, because hey, surf’s up!