A (too-often-repeated) exercise in top-picking: US stocks edition ...

In going through financial headlines and blogs lately, many -- MANY -- analysts are surprised by the melt up we're seeing in US stocks. The dynamic behind this move is likely due primarily to capital flight (and some market psychology, of course).

US stocks are clearly outperforming global risk assets -- commodities, international stocks, currencies -- and lots of speculators (me included) have been trying there hand at picking a top. 

This time around, I'll point to the potential double-top forming on a daily chart of the S&P 500:

Assuming the S&P 500 rolls over here, it would mean the set-up (similar to two others we've recently seen lead to a breakout) has failed. And it may signal this market can't go higher before a correction freshens things up. The lack of volume amidst this melt-up has been well-documented. What's more: defensive sectors like utilities and staples have been driving gains the last few weeks.

In other words: lack of conviction and sluggish price action may suggest the upside has run its course and beget a sharp sell-off.

But that's enough of technical talk for now. Let me poke at the Great Rotation a bit ...

US Treasury prices are on the rise (yields falling) after putting in a double bottom. I'll spare you the chart. German bunds are also seeing yields decline sharply. This isn't supposed to be happening, based on the rotation concept. And while the Great Rotation could eventually materialize in a way that resembles the great forecasts, recent action suggests the rotation will pause for the near term.

I came across a blog earlier this week discussing what to expect from the end of the first quarter (today). It suggested pension funds (among other funds) would look to lock in the outsized gains from being in US stocks the last few months and rebalance back towards fixed income a bit. To me, that would seem like the prudent thing to do at this juncture. 

Will it happen? And if it does, will it mark a temporary top and lead to sharp downside in the months ahead?

It may still make more sense to play for downside in other assets, like copper, that have underperformed US stock markets. But I think we're close to an opportunity to capture some gains on downside in US stocks.

-JR Crooks

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