As I watch US two-year bond yields racing back towards 5% again, you could be forgiven for asking how US stocks continue to rally.
The longer short-term rates stay up near 5%, the higher the chance we’re going to see something break. US commercial real estate is my bet, but in the end, it could be something out of left field.
As I watch US two-year bond yields racing back towards 5% again, you could be forgiven for asking how US stocks continue to rally.
The longer short-term rates stay up near 5%, the higher the chance we’re going to see something break. US commercial real estate is my bet, but in the end, it could be something out of left field.
In today’s Closing Bell video, I have a close look at the latest Commitment of Traders data in the S&P 500 to show you how market positioning is changing as the rally continues.
The dealers are closing long positions and adding to short positions. Leveraged funds are running away from the large short position they have been carrying, and other market players have been short covering as well.
Such moves provide a short-term boost to the market (as shorts are ‘covered’, trades must buy back their positions). That makes me suspicious of the rally.
Moreover, the S&P 500 is rallying into large overhead resistance, so I reckon we will see a reversal fairly soon.
But that reversal hasn’t happened yet, and the weekly trend is up.
Until we see the selling emerge, I have to remain technically bullish on the S&P 500 in the short term.
The ASX 200, on the other hand, remains bearish on my charts. We need to see a strong rally to change that view.
I don’t think there are many traders out there with a high level of conviction about what comes next. Two years of sideways motion in the ASX 200 means that it is incredibly hard to predict which way it will break.
But with central bankers still pushing rates higher and growth starting to slow, investors need to remain aware of the risks and focus on capital preservation.
Until next week,
 |
Murray Dawes,
Editor, Money Weekend
