Technical Analysis Of The Markets

August 31, 2018

Flat As A Pancake - US 10-year yields are currently trading at 2.8%, while shorter-term 2-year yields have surged higher, more than doubling over the last 12 months to 2.6%. The difference between 2 and 10 year yields has reached a scant 20 basis points. The US yield curve is flat as a pancake.

Summer Lull Coming to a Close - As stock markets continue to gently rise and volatility falls back to recent lows, investor confidence in the now-longest bull market in history is unshakable. Perhaps rightly so as many US equity indices are now breaking out to new all-time highs. While the US stock market continues to advance, European equities remain range-bound, while emerging market equities are correcting sharply.

German Equities Leading - In 'Waiting for the Break', I showed the Eurostoxx 600 Index consolidating below a resistance zone that has capped European equities for almost 20 years. A break out on STOXX Europe 600 Index above 410-415 would be a very positive move for the region and the Active Asset Allocator will take a position in European Shares if it occurs. Germany has been the strongest performing economy in the Eurozone.

Declining Trend in New Highs on NYSE - Despite the recent breakout in US stock markets to all-time highs, there are still a declining number of stocks making new highs on the New York Stock Exchange (NYSE) versus those making new lows. To date, this signals weakness in the broader rising trend. Things may change, but for now, I continue to advise caution, particularly as we navigate the historically volatile months of September and October.

Wilshire 5,000 vs US GDP - The Wilshire 5,000 captures the market capitalisation of all equity securities trading in the United States. Historically comprised of approximately 5,000 names, currently there are just under 3,500 equities listed in the Index. The Wilshire 5,000 Index has a market capitalisation today of approximately $29 trillion. The Index sports a trailing price/earnings ratio of 26 times and a price/book ratio of 2.7 times.

Have a wonderful weekend everyone!


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