Today, I wrote a short topic on strategy. No update on the quant models but there is no change in our positions.

It is interesting to notice that the Economic surprise is improving fast in Europe(red line) while this index is declining fast in US(blue line). The negative correlation is so 'perfect' that we believe the FX has been the main driver of this situation.

We can notice this situation is in line with recent outperformance of the Stoxx600 relative to the S&P500 (in euro): medium term uptrend in favor of the S&P has just been broken.

Looking at key valuation metrics, it is obvious that Europe is much cheaper than US. Here is a sum up review of US & EU valuatin based on key metrics. (1= not attractive based on long term average multiple, 3=neutral, 5=attractive based on long term average multiple).

Explanation of different abbreviations:
- PE_NTM = P/E Next 12Months
- PE_LTM = P/E Last 12Months
- P/Book = Price/Book Value
- P/S = Price/Sales
- Dvd Yld = Dividend Yield
- EV/EBITDA = Enterprise Value/EBITDA
- EV/Sales = Enterprise Value/Sales
- EarningsYLD - BDS_YLD = Earnings YLD (= 1/PE) - 10y Government benchmark

Looking at current sentiment, we can notice the Bull/Bear spread is at elevated level but we are not (yet) in euphoria territory. So, Current situation could last for some times and the party is (probably) not over. You can remain on the dance floor but don't forget to remain close to the emergency exit, it is always better in case of fire alarm...

There is no change in our positin at this stage.

Daily Trading Book: 

The Sigma Whole Europe Index was under pressure on Friday but thanks to 'new developments' in the Greek story (at the end of the session) the market was able to erase its losses and to close roughly flat.

The market remains in its blow off mood, and there is no sign of reversal on the charts. How far can it go?

The Power Level (PL) came in at '2' on Friday. So, the ST model generated a sell signal on European markets.

So, we opened short positions on European indexes during 'extended' hours. We sold:

- 1 CAC @ 4852.47

- 1 EStoxx @ 3511.63

- 1 DAX @ 11101.5

- 1 IBEX @ 11006.8

The Sigma Whole Market Index remains in rally mood and it was able to move above its strong horizontal resistance. It seems nothing can stop this market. We are probably in a blow off top process but it is always difficult to have the right timing for the top. The market could continue to rally for a couple of weeks/months (like in 1999- early 2000).

Looking at key indexes, we can notice some divergences between indexes.

But the DJT and the DJU didn't confirm the new top. So, let's focus on those indexes.

The Sigma Trend Index came in at '18' and the swing came in at '4', telling us the move was impulsive.

The ST model uplifted its stop on the NDX:

Daily Trading Book: 

The Sigma Whole Europe Index remains very strong and there is no sign of reversal at this stage. ECB's liquidity continues to fuel the market and it seems the blow off scenario could be on the agenda.

Looking at key EU indexes, the situation is the same across Europe:

The IBEX reached our stop level and we closed our short position: 10677.7 - 10823.5 = - 145.8 (loss)

The Sigma Trend Europe increased to '23' but it remains below the key '34' level.

The Sigma Whole Market Index remains strong, there is no sign of reversal at this stage but the market hasn't been able to move above the red horizontal resistance. So, a double top scenario remains possible.

There are important divergences among key US indexes: some are below resistances, other moved above their resistances while others are close to major supports. So, it is not so easy to draw a clear conclusion.

The Sigma Trend Index declined below the key '34' level in the last 2 sessions but the market hasn't been able to print a negative impulse  => no 'sell' signal at this stage. If we didn't get a negative impulse on Thursday, the warning signal will be cancelled and the ST model won't generate any 'sell' signal as long as the STI moves again above the key '34' level.

Daily Trading Book: 

With US markets closed on Monday, the Sigma Whole Europe Index was in a wait and see mood.

Looking at key EU indexes, it is difficult to be bearish at this stage.

The Sigma Trend Index remains close to '10', all other indicatots were neutral on Monday.

The US markets were closed on Monday. So, there is no update today on those markets.

Daily Trading Book: 

The Sigma Whole Europe Index had another strong session and hit new highs. There is no sign of reversal at this stage.

Nevertheless, looking at the Sigma Smart Money Index Europe (SSMIE) (= Sigma Whole Europe  Index adjusted for volatility), we can notice this index is moving in opposite direction to the Sigma Whole Europe Index. This is not a good signal for the European market, and the negative divergence seems unsustainable.

The Sigma Trend Index slightly increased to '13'. The Swing came in at '4' telling us the move was impulsive.

We are now close to our "stops" on most European indexes. If the market reaches our stops, we will take our losses, this is part of the investment process: bad trades always happen and it is normal to stop them. This is why it is very important to avoid "over-leveraged" situations because one bad trade could "kill" you (if its size is too big).

The Sigma Whole Market Index is close to the top end of its trading range. Let's see if it is able to break it or if we get a double top pattern.

The Sigma Trend Index jumped from '10' to '32'. So, we are very close to the key '34' level (level required in order to generate a 'sell' signal).

Daily Trading Book: