Remaining Neutral But On A Bullish Bias As Market Sentiment Recovers

``Security is the mother of danger and the grandmother of destruction.” -Thomas Fuller (1608-1661), British Clergyman and writer

Yes, market sentiment has unquestionably recovered, with emerging markets and Phisix breaking out into new highs as the US dollar continues to stagger and approach its December 2005 lows, see figure 4. Momentum appears to have now shifted in favor of the bulls.

Figure 4: Stockcharts.com: Falling US dollar

Signs of general recuperation in the US markets plus the faltering US dollar have aided this present momentum shift.

Emerging markets on the upper panel as indicated by the iShares EEM, Asia’s markets as indicated by the JP Morgan Asia Equity index in the lower panel, the Phisix on the Main window synchronically on RECORD territories, most likely prompted by the declining US dollar (upper lower panel).

Yet, we cannot discount the risks that volatility could nudge higher as US markets have YET to clear the hurdle of its recent highs as the case of the S&P 500 and Dow Jones Industrials, see Figure 5.

Figure 5: stockcharts.com: US benchmark breakout imminent?

Albeit, Nasdaq’s recent highs (upper panel below main window) should increase the probability that a similar breakout on the Dow and S&P could be imminent.

In the meantime, component industries represented in the S&P 500 has shown significant indications of healing from those experiencing recent selling pressures such as the S&P Banking Index (lower panel).

Further the significant breakout of Crude oil to the 70’s territory, which apparently has turned out as we had earlier predicted in our April 23 to April 27, 2007 Edition (see Could Brent’s Premium Over WTI Imply a $70 above Oil prices?), could imply that there could be more forthcoming weakness in the US dollar.

Moreover, strong oil prices could also be representative of a pick-up in global demand (indicative of world resilient economic growth) relative to supplies.

We remain on a neutral status but this time with a bullish bias (with selective opportunities), until we see those recent highs by the key US benchmarks surpassed.