Global equities were higher for the fourth week in a row, with gains concentrated in the US and Asia.
Cyclicals were bid across the board, led by fins following positive earnings reactions.
While cyclicals were strong, cyclical based currencies and rates did not confirm, such as the  AUDUSD and China’s 10yr, which were both lower on the week.
Given global liquidity is still quite poor into the summer, and most of the economic data is indicating we are still in a global bear market, defensives continue to look attractive.
Especially as volatility rises.
So stick to high quality.
And wait for the percentage of asset managers OW equities to drop below 0 (currently 18%), as has been the case in each prior bottom.
Though there has been an improvement in sentiment (via Hedge Fund Telemetry, sign up here).
With the most recent move higher likely being driven by CTA’s covering.
And managers chasing, as the market looks cheap.
But tread carefully as multiples tend to compress as vol rises
And EPS might still be too high.
As well as US rates.
Which other markets are also indicating (China 10yr green, Japan 10yr red, German 10yr blue).
Which is consistent with the data.
So much for the global synchronized recovery.
So keep an eye on TLT, which recently had a downside 9.
Which we’re also seeing in equities, but on the upside.
Spoos
Small caps
Fins
Tech
And real estate.
So given these exhaustions, along with the market up 13.59% since the December bottom (99th percentile for returns over 20-60 days), the probabilities favor a pause or move lower.
Though given the severity of the prior drawdown, we may grind sideways/up into months end, before the next large move.
Have a good week.
Teddy Vallee Uncategorized

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