Overview
- There is no bubble yet.
- The market is dislocated with rates very low and equities reflecting strong earnings.
- Low rates/Low wage inflation/low commodities prices have artificially boosted earnings which, discounted at a higher multiple, boosted equities value.
- This rally is strange, is not loved yet (except in China), thrives on issues and eventually climbs the wall of worry.
- At the moment it feels as if the convergence was going to occur on the upside.
- This process could last longer and would reach bubble valuations if so (call it another 3 years with significant corrections in the next 12 months).
- At some point, valuation would be very high and rates will have to go north again smoothly or not and we shall enter another 2 year correction.
- Note: Strong rallies have lasted anywhere between 5 and 13 years in the past with 9 years being a good target – The last 2 years are generally fast and are the one inflating the price to bubble territories.
View for the next 12months on sp500:
> 10% correction starting before July15
> 20% rally into Nov15
> 20% correction into Mar16
Then we review – Buy into the bubble or not.
Assets Review
(1) SP500/Nasdaq100/Nasdaq Comp/Nikkei ready for a 3/4% correction (especially true for nasdaq comp) – If not, upside very limited.
(2) DAX oversold and on support around 11,640 but if (1) is true, it could go down to 11,100 (for an intermediary buy). Mean reversion or range expansion?
(3) EEM -EM equity ETF -seems to have 3% to go before reaching an important resistance that held the market for the last 4 years.
(4) FXI – China ETF – Very powerful – I give it the benefit of the doubt (purely technically/psychologically) as the base was constructed over 3years. Resistance here that if broken could open to more euphoria.
(5) EWZ – Brasil ETF – after 20% rebound is reaching resistance 3% higher too but is the big laggard in the global rally (one to consider buying after the next correction).
(6) Bund – could reach a great tactical short at 161.40 (Bill Gross explained the trade very simply). I can only see tactical shorts for now reflecting a slower speed up.
(7) EURUSD - shall increase through 1.1000 and reach 1.1300.
(8) USDJPY – shall correct to 1.1600.
(9) WTI – Crude Light may have bottomed and is climbing a wall of bad news which I read bullish – See chart below.
(10) Gold –congestion below resistance 1230 that may lead to an explosion up.
(11) Sugar – Awaiting 10.40 for great buy (may not be provided).
(12) Coffee – May be preparing its next dive down.
