US equities have mostly pushed higher from the compressions we reported in the last edition – see first chart below. The S&P, Dow and Nasdaq have all made new rally highs since the trough of March and this has been a relief to bulls who have been anxiously watching the 50% retracement level of the drop. The S&P fell 1223.75 points from 3397.75 to 2174.00. Bouncing halfway up this drop would have meant stalling at 2785.75 and the market has actually reached 2885 today, so are we out of the woods?
This is false comfort. Some technicians seem to like the 50% retracement level as a way of marking market milestones but we are not technicians. The most worrying aspect of this rally has been the lack of mid-cap participation (see second chart above) and this indicates to us that confidence is shallow. Stay long but tighten stops again. If these compressions in this midcap index break downward, get out.
The only signal of interest has been a bottom extension in soya meal. This is a ‘political football’ as it is the main use for soya beans these days, feeding livestock the world over, especially in China. The drop from a late March top extension was steep and now we have an equal and opposite bottom extension. Perhaps there will be a ‘Biden bounce’ in the polls with the prospect of a different approach to international trade and diplomacy… Buy some:
Finally, you might like to see a comparison between a ‘normal country’ that has imposed severe restrictions on its inhabitants and Sweden, which has famously tried to keep life going. We look here at the performance of a Swedish equity index and that of its next-door-neighbour, Norway. Each fell by similar amounts in the carnage of February/March and each has since rebounded to a closely similar extent:
It seems the stock market is unimpressed by either approach….
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com
