One of the most important topics on the blog this week was the extremely bullish sentiment governments bonds are portraying. Yes, Europe is coming undone and yes, investors are fearful, but you have to remember not to follow the herd. Maybe bonds have a little bit more upside or maybe they even have a lot more upside. Bubbles are irrational that is for sure, but nonetheless the higher Treasury prices go and the more extreme the sentiment becomes, the harder and faster the reversal will be. When money starts leaving the bond market, commodities and stocks should do well again.
Price movements this week were quite negative once more. Surprisingly, US small caps got hurt the most, by losing over 7% this week. This sector usually under-performs when the domestic economy is slowing down, because majority of the business activity in the US is done by small and medium sized business. Moving on, we can see that the Soybean complex got hurt very badly this week, but in general it was a very bad week for major risk assets like equities, currencies and industrial commodities. On the other hand, Natural Gas and Cocoa experienced oversold bounces this week, while the US Dollar had another great week, gaining 2.0%. The Yen and Franc held their own.
Talk Of The Week
There is a lot going on, so everything and anything can be the talk of the week really. Italian yields are back above 7%, Italy and Spain now have inverted yield curves as their economies are most likely in a recession, Agriculture had an awful week to extremely oversold levels and the Japanese equities are making new lows.
However, one thing really stood out for me, and as we can see from the chart above, that was S&P 500 experiencing the worst Thanksgiving week since 1932 to clock up its 7 consecutive down day. This is now on par with the August crash of this year and the inability for the market to bounce is a worrying sign for the bulls. Nevertheless, one should consider a contrarian bullish position here - at least for a short term trading bounce, because we are approaching oversold levels on many technical, breadth and sentiment indicators. The up-and-coming week should be very interesting indeed...
I hope everyone enjoys the rest of their weekend!