Wednesday’s engulfing candle in the 30 minute time frame needs to be confirmed (a close below 2,036.72) for price to begin a retest of support. Thursday’s opening range is so far a bullish rebuke, encouraging bulls who see this as a setup for the next rally above 2,089.70. We get the sense that the very short-term mirrors the short-term and intermediate-term condition.
The past few week’s domination by the defensive sectors, Healthcare, Utilities and Consumer Staples, experienced a perceptible shift towards the cyclicals over the last five trading sessions. How much traction do cyclicals have is the real question.
Above 40,000 feet, we can begin to see the curvature of the earth and gain a better sense of the interconnected whole. A standout feature from this vista is that though their paths may change sometimes, rivers always reach the sea*. We use this analogy to view the impact of central bank policy on the markets, starting with currencies.
A quick note on yesterday’s drop in the markets and our short-term outlook:
The focal point is oil, which appears to be nearly through in its correction, with each successive decline impacting other markets due to leverage, and to a lesser extent supply/demand. Investors should keep in mind that refineries have little interest in taking in significant new inventories of crude at present, due to seasonality.