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The NAVIGATOR - May 2019 - Stock Markets Preparing for Reversal-Downswing – Emerging Markets Heightened Downside Risk – US$ Dollar Set for Safe-Haven Push Higher – Treasury/Bund Yields Resume Lower

The latest Fund Manager Survey from Bank of America/Merrill Lynch polled 239 investment pro’s with an AUM of $664 billion in its April 5^th -11^th . It showed some interesting facts – investors were positioned for ‘secular stagnation’, long assets that outperform when growth and interest rates are declining whilst short assets that are aligned to growth/rate advancing such as emerging markets and utilities. A total of 66% polled expected the secular stagnation to continue, the highest levels since October ’16. Utilities comes top in the league table of sectors with discretionary and EM’s close behind. Cyclical risk was added to whilst the allocation to global banks fell to the lowest level since September ’16. But it looks like some changes occurred into the second-half of April. As the benchmark S&P 500 approaches its September 2018 highs, investors have begun to leverage into cyclical stocks as by State Street Global Advisors. It cites recession fears are falling and there’s more optimism over improving Chinese economic data. But is this establishing a new trend, or is this an expression of over-optimism at exactly the time when major indices are forming a peak?

This month’s report updates the progress of the S&P 500’s five wave impulse uptrend that began last December – the report also takes an in-depth looks across the various sectors – Consumer Discretionary (XLY), Technology (XLK), Utilities (XLU) and also the Semiconductor (SOX) and Biotechnology (NBI) sectors. This month’s report also updates the MSCI Emerging Market index, the Eurostoxx 50 and Eurostoxx Banks indices.

The EW-Navigator’s Currency section updates the upward progress of the US$ dollar – there’s an increasing probability of a surge higher basis Elliott Wave and cycle analysis but with some important caveats to watch out for. Equivalent support/resistance levels are highlighted in the Euro/US$. The report also updates Elliott Wave counts for the Canadian Dollar US$/CAD, the Mexican Peso US$/MXN, the Chinese Renminbi US$/CNY, Brazil’s US$/BRL, South Africa’s US$/ZAR, Russia’s Rouble US$/RUR and Poland’s Zloty US$/PLZ.

Interest rates have performed perfectly over the last month, following Elliott Wave projections through March/April. The correlation between stock indices and long-dated yields are re-aligned after some discrepancies so far this year which all points to one direction – downwards. Just how far depends on the Elliott Wave pattern progression. The EW-Navigator updates treasury and bund yields but also reports on some important inflexion points reached in the Italian ITY10yr yield and its spread with the DE10yr yield.