The equities buying wave mostly originates from the US Treasuries selling activity. As of now the 10Y rates are at 2.66%, with the US/Japanese rates differentials breaking higher to 2.58%. So yes, this is a great incentive for Japanese pension funds to buy US ETFs and US large caps.
Can the Fed really revert that process on Wednesday? If the Fed delays the QE unwinding process, then there will be a rush back into US Treasuries, but at what cost to the Fed's credibility? Hence, I believe that QE unwind will be maintained.
The only issue is related to the weak US$. A strong rate differential attracts foreign money, but a weak US$ puts natural brakes on such a move. The US would need a stronger US$ in order to be able to swiftly sell paper to cover its growing deficits. Such a US$ oversold bounce does not seem to appear yet.
However, what we start seeing is some buying activity in the defensive sectors (Rates will be lower soon?) combined to selling of gold miners and materials related stocks (US$ will be higher soon?)
Also interesting to see that the TSX60 displays weakness here. This is also an indication that the rise in the large US equities is limited to US companies and mostly due to foreign investors that need the income and liquidity of US assets.
Note below that the Cumulative Tick is weakening. Hence, not everything is bullish about equities.
However, this weakness is now shown in the small caps Money Flow yet.
Conclusions:
Many equities related EV patterns in the 10Y rate and in US$ related sectors point to a reversal. This shows that the market expects a reversal-to-the-mean type of move.
On the equities front, there is no reason to jump on the short side and a parabolic move higher in equities usually attracts sellers and hence might generate reversals.
I would however be interested into buying CELG. The company has fallen much in past months due to patent issues and the consequence on its futures earnings, but CELG has issued strong earnings and good guidance last week. It has also bought JUNO, which should help keep its revenue source.
We can see below that the Supply level is at its lowest at around 104$. Hence, no new seller here.
However, the EV pattern does not show that large investors are coming back into the stock.
