Stocks remain in a strong Bull trend with compelling cross asset support from a virtuous Dollar dynamic which suggests that a powerful new cyclical uptrend has commenced. When prices trend it is easier (not easy) to make money and there is no shame in embracing that trend.
Conversely, for the better part of the last 2 ½ years stocks churned not trended, internals were grim (narrow, defensive), macro was a mess (rates, crude, credit), and the ominous specter of Brexit and Trump cast a pall with the potential to ignite the entire affair. Against that backdrop it was prudent to play tight, tactical, lock down technical analysis, which if nothing else kept us in the game just long enough to capitalize on the target rich trending market staring us right in the face.
I continue to hammer that Virtuous Dollar dynamic whereby strength in the DXY (90% Europe and Yen) continues to support stocks in Europe and Japan, while at the same time strength in Real, Ruble and Rand continues to support the Bullish reflationary narrative supporting Emerging Markets, Commodities, Credit Spreads, Rates (Higher in Yield) and Risk Assets more broadly.
In turn this positive macro feedback loop has engendered broad based bipartisan sector support from both sides of the aisle, with Healthcare (+5.7%), Discretionary (+6%) and Tech (+8%) actually outperforming the cyclical awakening across Industrials, Materials and Financials. If Defensives, Discretionary and Tech are going to lead in a reflationary world, I love our odds.
While I remain terribly vexed by Energy, my work tells me to view this glitch in the macro Matrix as a delay, not a divergence. In sum, I’m not telling you that you can dodge pullbacks; I’m trying to tell you that in a trending market, you won’t have to. “Don’t get lost in the Mnuchin” and don’t miss the 40 pages of REIT’s at the end of the deck.