Stocks Breaking Out
Macro Perspectives
Yesterday, we talked about the significant movement in the debt ceiling negotiations - we went from no movement in the prior week, to this statement from Biden: “we have to move on.”
With that, the risk premium in markets is being unwound - that means stocks are up.
At the end of the first quarter, we had a break of the descending trendline that describes the bear market of last year (yellow line). We’ve been watching the 4200 level (specifically 4208, the high of the year) - it looks like we have a breakout with price trading up to 4215 yesterday.
This, as the market has been heavily short, or underweight equities, as per the CFTC’s Commitment of Traders report and according to Bank of America’s Asset Manager survey. As we’ve discussed, a market that is leaning the wrong way tends to exacerbate a breakout like this, as they are forced to chase the market higher in order to reposition.
If we look around, globally, there’s support for the breakout scenario in stocks:
German stocks made a 16-month high and are knocking on the door of new record highs.
Japanese stocks have been marching higher by the day, just half a percent away from the highest levels since July of 1990.
