Are Asset Prices In The Midst Of A Change In Trend Or Simply A Counter-Trend Rally?

Yesterday, we highlighted how equity trends have completely flip-flopped in April. Emerging market stocks have outperformed the developed market stocks, developed market energy is the best performer while developed market health care is the worst performer, etc.  There is a chance that we are in the midst of a major turning point but experienced market watchers are aware that picking out trend turning points in real-time is very difficult. With this in mind, as we look across a variety of asset classes, it seems that the market may just be taking a breather from the intense one way march that most assets have been on since last summer. As has been the the theme recently, it seems that the dollar may be driving market action across most asset classes.

Let's start with the dollar. The nominal trade-weighted dollar indexed topped out in mid-March. After increasing from about 76 to 93 from July to March, the index has slightly fallen back to 90. As of now, the dollar looks like it is simply in consolidation mode and not in a full scale trend change.





Yields in developed markets have slightly widened in April. German 30-year yields have backed up by about 20 basis points and the 10-year has backed up by about 8 basis points. However, this needs to be viewed with the steady march lower in yields of the past six months. With that in mind, German (and US) yields look like they too are could be in a consolidation phase.





Same story holds for commodities. Commodities, especially oil, have shown some signs of friskiness since mid-March. Is this a wholesale trend change? Or again just a consolidation phase? Only time will tell.





Lastly, let's look at some equity trends. As we said, developed market energy stocks been by far the best performer MTD. However, this group of stocks has vaulted from very oversold to overbought in the matter of a single month, at least on a 100-day basis. Meanwhile, breadth in health care continues to be strong even though it has been the worst performer MTD. Health care, on a 100-day basis, remains squarely in overbought territory and as of now shows no signs of relenting its bull market pole position . EM stocks have enjoyed its recent run, most sectors are powering towards overbought levels.

It seems that the dollar is (still) driving market action across most asset classes. If dollar breaks down from current levels, trends observed since mid-March most likely will persist. However, if the dollar is simply consolidating before a move higher than there is a good chance that 2015 will look very similar to the second half of 2014.