European & North American markets overbought

March 25, 20133 Comments

With Cyprus frount & center in the news, I’d like to take a look at the SOXX50 for this weeks macro view.Back in December, I took a look at this index and suggested that its breakout could signal a move to 3000 from the 2600 point at the time of writing. Here’s the blog: https://www.valuetrend.ca/?p=1664

The SOXX managed to reach 2750 after my blog, only to be pushed back to 2680 after the Cyprus news hit the markets. The SOXX is finding support at the 50 day MA and is being tested at this time at the 2680 level. With Cyprus coming out with a solution to its current banking crisis this week, I’d expect the 50 day MA to hold and my original target of 3000 to be possible. Against that upside possibility is the overbought and rounding over of momentum indicators, as circled on the chart above.

I do not hold any positions in European equities nor do I expect to initiate any in the near term.

Momentum is overbought and rolling over for the major US and Canadian indices as well- I noted this on the S&P 500 chart above. I’ve also noted on a longer termed TSX chart the traditional May seasonal sell time. You will see that May was generally a good time to take some profits (except in 2009, where nothing was going to hold that oversold market back!). I note that in 2010, 2011 and 2012 the markets peaked in March, rather than the usual late April/early May pattern. Perhaps this year, we should “Sell in March and go away”, rather than “Sell in May”. I’m now about 40% cash in my ValueTrend equity model.

As always, you are invited to post comments on this topic below. Further, I appreciate hearing from readers regarding specific sectors you would like to see covered on Thursday’s “Sector View” blog. 

3 Comments

  • Hi Keith

    I have read your views on the European and North American market and would agree they are over bought with the exception of the TSX. I’m not seeing the TSX as overbought at this time, but do see a divergence between price and some of the indicators (MACD, RSI) I follow. This indicates to me that we have seen the high for this winter season as you are suggesting.

    My question is, do you feel the TSX has the same down side potential as the SPX500, given that we have not returned to the all time highs of 2008 and that we have just recently surpassed (barely) the high of2012.

    I am also wondering, with so many money managers and investors agreeing that we are due for a serious pull back in the North American markets, is that in it’s self an indicator that the opposite will happen. I too have been raising some cash, but mainly due to the seasonal trading strategy I follow from yourself, Don Vialoux and others.

    Your opinion on the above would be appreciated.

    Thanks,
    Joe

    Reply
    • Joe these are good comments. I dont know how far the TSX will likely pull back, but the argument could be made that its comparative relative strength has been worse than the S&P500, thus it will also perform worse on the way down. Who knows? One thing working against the TSX is the commodity cycle–there is a (roughly) 65 year cycle (30 yrs or so up, then down) that suggests commodities will trend down for many years to come. i’ve posted this on a bolg in the past–I cant recall when, so search the site and you will find the mega-cycle chart I speak of. It was given to me by Horizons ETF guys a while back. So far, its been accurate–commodites started rounding over on schedule a year or so ago.
      You are correct in saying that the tSX is no longer overbought–the momentum indicators are low. But like you, seasonals are an important part of my strategy so that alone makes me sell.
      As far as many mangers becoming bearish–I dont see that. Gad–go to seekingalpha.com and read the posts there. 2/3rds are bullish. Meanwhile I hear many managers suggesting the bond market is about to crash.
      I’m writing a piece for Moneyletter right now that highlights the interesting patterns of speculators–right now, they are net long with leverage the equity markets, particularly the small caps…..and are net short US long bonds. Meanwhile, the smartest guys in the room–commercial hedgers, are doing the precise opposite. They are short equities, long bonds.
      Makes you think….

      Reply

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