Last Thursday we went through an exercise of looking at a number of technical charts.

We were curious whether these supported what we were seeing in the fundamentals for stocks, sectors and even global categories, such as emerging markets, Europe, etc. What we found was that the technical data did seem to support our observations and conclusions derived from economic as well as other data.

The first thing we wanted to know was the health of the market and was the uptrend still intact? The answer from the charts is yes, but potentially at a critical point. If we make it successfully through the next month or two, then we should see new highs before the end of the year and gains continuing into next year.

If we fail and the markets go into a more severe downturn, then a recession and worse markets could be in the offing. This did not look to be very likely, but a possibility that cannot be dismissed. We will keep close watch on this.

Most likely are some significant rotations. We expect that the markets are going to anticipate some reflation. As a result some sectors will go out of favor and others will come in.