This is what we wrote July 15 in our DVT submission on long government bonds:

“Despite all the talk of inflation and raising rates to combat it, US long bond and the recent whisper of QEIII show that deflation is still the unnamed fight the stock markets and Fed Chairman Bernanke are waging down below in the deep. The above chart shows the 125 day moving average turning up in May, the same month that begins a strong seasonal period according to the work by Don and Brooke. We own a substantial position in Canadian long AAA bonds and a smaller one in US bonds. Interesting how the bond markets sold off Wednesday after the Bernanke testimony but closed up on the day! Thursday was down based on the debt ceiling fight and a fall in jobless claims.”

For most client portfolios we still hold between 40 and 70% long bonds, primarily Canadian but we do hold some US. Though we have become slightly extended in the near term we have not received any outright sell signals yet. Weakness in equities which is expected to continue into earnings season and a Greek resolution may provide the opportunity to protect significant gains.

EQUITIES – S&P 500, Shanghai: Some Canaries in the Coal Mines

This is what we wrote July 15 in our DVT submission on the S&P:

“Despite the euphoria from the QEIII talk the broader markets look tired and the action Wednesday was not encouraging in the near term. We expect stock markets to mish mash through earnings season and present better buying opportunities between now and October, despite the Google bounce.”

……and here is the same chart today

Like the comments made for a bond sale, equity purchases may still be premature. Near term targets suggest 1010 on the S&P and will provide excellent risk-to-reward in selected sectors.

China

This is what we wrote July 15 in our DVT submission on the Shanghai:

The Shanghai, representing the domestic Chinese investor has not done much in the last year and a half, and yet is critical to the global picture (RSI has been muted for sometime). Overhead resistance is nearby, as the country, who believes in centrally planning a market-based economy, continues to raise bank reserve requirement (and other tactics) to cool inflation.

……and here is the same chart today

As you can see we are reaching support at the June 2010 lows. The Shanghai market matters as a driver of the global economy. The downtrend which began later than year in 2010 was a warning that the equity up move based on markets that were on steroids (QEI and QEII) were a bit of a mirage.