Talking Technicals

There’s been a lot of talk about “resistance” levels in the markets. We checked in with Jordan Kotick, Global Head of Technical Strategy at Barclays Capital told us what’s going on.

Q: What’s going on with the resistance levels?

A: Many of the leading EM markets that led the way to the topside last year have already topped out and are in corrective mode already. As for the US, we are watching a few things over the next month.

The first is the Russell Indices. The Russell 2000 (small caps) has been outperforming the Russell 1000 (large caps) for the better part of 2 years. As such, small caps are only 5% away from their all time high and this is likely to be a market pivot near 850. By way of contrast, the Russell 1000, like the S&P or DJIA for example, is still 14%-16% away from its all time highs.

Q: Any other equity markets to watch?

A: Yes, we also have been highlighting the NDQ Composite. After bottoming at the height of the credit crises very close to where it bottomed back in 2002 , it is only 2%-3% away from its important 2007 peak near 2860. This was the high before the credit crises so not only will it be an important pivot, a break would trigger more buy signals and further the outperformance of Technology as a sector.

Q – What about other asset classes?

A- Rates. We believe interest rates will be the dominant asset class for the next decade and so we take note when we see 30 year yields in the U.S. on or near a key trigger. Support near 4.85%/4.90% has been the area where buying has turned back the aggressive selling in rates many time over the last few years. Through here would trigger fresh sell signals. This would increase the probability that the move higher in yield has more to go long term. This will increasingly become a key trend for all markets.

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