Pro Perspectives 5/18/23

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May 18, 2023
Yesterday, we talked about the significant movement in the debt ceiling negotiations.  We went from no movement in the prior week, to this statement from Biden yesterday:  “we have to move on.” 
With that, the risk premium in markets is being unwound.  That means stocks are up.  
We’ve been looking at this chart on the S&P …

At the end of the first quarter, we had a break of the big descending trendline that describes the bear market of last year (the yellow line).  And we’ve been watching this 4200 level (specifically 4208, the high of the year).  This looks like a breakout today.  We traded up to 4215.
This, as the market has been heavily short, or underweight equities, as per the CFTC’s Commitment of Traders report, and Bank of America’s Asset Manager survey, respectively.  As we’ve discussed, a market that is leaning the wrong way tends to exacerbate a breakout like this, as they are forced to chase the market higher in order to reposition.
If we look around, globally, there’s support for the breakout scenario in stocks. 
German stocks made a 16-month high today.  And as you can see in the chart, this is knocking on the door of new record highs.  
And Japanese stocks have been marching higher by the day, just half a percent away from the highest levels since July of 1990.