“Stay defensive,” warns BofAML’s Macneil Curry. While risk assets ended last week on a very strong note, with the S&P500 putting in its best 2 day performance since October; the weight of evidence says that new S&P500 lows are coming and that risk assets should suffer in the weeks ahead. From the S&P500’s impulsive decline from 1850, to negative February seasonals, to deteriorating equity market breadth (the percent of NYSE stocks trading above their 200d avg is at its lowest since Oct’12); it should pay to remain defensive. In the week ahead we look for a top into the 1800/1823 area before the downtrend resumes for 1711/1686; and stay bullish bonds.
Via BofAML’s Macneil Curry,
SP500 price action says the trend is down
Despite the impressive Thursday/Friday rally, the weight of evidence says the trend has turned lower. In addition to deteriorating breadth and negative seasonals, the decline from 1850 to 1737 was impulsive (unfolding in a non-overlapping five wave manner) which means the trend has turned lower. In the week ahead we look for a top into the 1800/1823 area before the downtrend resumes for 1711/1686.
February is bad for risk, especially after a down January
February is a month when the S&P500 tends to take a breather. Since 1950 it has averaged a return of -10bps and risen 55% of the time. HOWEVER, after a negative January the month of February turns much nastier. In such instances, it averages a decline of -1.4% and with the odds of a decline rising to 63%. BEWARE.
Stay bullish Treasuries. 5s target 1.245%/1.224%
With risk assets set to suffer further, stay bullish Treasuries. Focusing on the belly of the curve, 5yr yields remain on track to test their medium term range lows and long term pivot zone of 1.224%/1.245% before greater signs of basing emerge.