The market optimism switch has been turned back on, judging by the performance in markets on Monday -- where the S&P 500 ended at its second-highest level ever -- and the early moves on Tuesday.
But the technical outlook across multiple markets isn't conducive for risky assets, according to Paul Ciana, the chief global fixed income, currencies and commodities technical strategist at Bank of America.
The ratio of the U.S. treasury bond future vs. Russell 2000 index reached a new all-time low in March, and has since turned higher. When this ratio has turned up from such low levels before, it has preceded a period when the bond market outperformed the Russell 2000, he says.
Bonds also have turned up vs. copper and oil.
Moreover, the charts of the U.S. dollar suggest the greenback is positioned to outperform bonds, the Russell 2000, copper and oil. The last time the dollar "double-bottomed" vs. the Russell 2000, it outperformed in 2018 and 2014.
"This cross-asset conundrum casts a shadow over risk taking in the second half of 2021," he says.
Technical analysis by its very definition excludes fundamental analysis, but a world where bonds and the dollar rally would be consistent with a global economy struggling to maintain its momentum. Recent economic data have disappointed analysts, including Monday's report showing a drop in the U.S. composite purchasing managers index to an eight-month low.