Japanese Equities look ready to extend rally on the back of strong earnings beats and improving technicals. Relative strength vs. US equities has been rising even on a currency hedged basis and are a significant holding and compliment to India, Taiwan, China and Latin America in Barometer’s Global Macro Pool.
The last week of August was the most encouraging of the month. After a strong start to the year, and a positive July, as previously noted it tends to be that the seasonally weak months often wind up better than average.
Early in August, short term breadth indicators weakened raising the risk of correction. However, after only a shallow pullback and a big reversal day Monday, all of our short term equity breadth indicators flipped back positive to end the week. This raises the spectre of continuation of the longer term secular bull trend and sets up potential for a Q4 chase by those underinvested.
The first of the major improvements this week was the reversal up in the Nasdaq 100 bullish % (percent of stocks in point and figure up trends).
Over the next three days we got positive reversals in short term New York breadth indicators …% above the 50 day moving average, % above the 150 day moving average, % of stocks with positive weekly momentum and finally % of stock hitting new highs vs. Those hitting new lows.
The biggest challenge for us as Canadian investors has been the weak performance of our local market and the sharp rally in Canadian dollars vs. USD or rather the very weak USD vs. almost all currencies. While it is unlikely that the Canadian residential real estate market and the very strong new auto sales figures will remain as strong in the second half as the first, the likelihood of a near term rate hike is creating lift in the currency and raises the need to hedge back at least some exposure to CAD depending on the mandate.