Relax, We're In A Sweet Spot For Equities
Cam Hui | Sep 02, 2014 12:16AM ET
- Trend Model signal: Risk-on
- Direction of last change: Positive
The real-time (not back-tested) signals of the Trend Model are shown in the chart below:
The US equity market remains in bull mode on an intermediate term basis. The Trend Model looks at markets globally and conditions have marginally improved from last week, which was at an already "risk-on" signal. The S&P 500 remains in an uptrend, with the index staging an upside breakout to new all-time highs.
Despite the disappointing growth outlook and heightened geopolitical risk from Russia-Ukraine, European markets (via STOXX 600) weathered the bad news last week relatively well and remain in a weak uptrend.
Commodity markets were mixed. The broadly-based CRB Index (in black) remains in a downtrend, though it appears to be trying to stage a rally. Industrial commodities, which are even more cyclically sensitive than the CRB, are showing more strength and appear to be undergoing a high-level consolidation.
More encouraging is the bullish engulfing pattern shown by the monthly SPX candlestick chart. This pattern has historically led to further advances in the past.
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The bull case was bolstered by Bespoke ) show the percentage of bulls to be above 50 and bears at historical lows - which appear to be a worrisome development. However, these readings are highly volatile and unreliable. As an example, I inserted vertical lines into the Bespoke charts indicating similar extremes in sentiment. While some of these signals were accurate warnings of near-term tops, in other cases the market shrugged off these excesses in the past to advance higher
Bottom line: Both my inner investor and inner trader remain bullishly positioned. We are in the middle of a sweet spot for US equity prices. Sit back, relax and enjoy.
Disclosure: Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.
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