Our 'Three Rules' clearly favour risk assets, with the one caveat that short-term sentiment is now in extreme optimism territory. Our first rule is Don't fight the trend: the primary trend (our proxy is the S&P 500's 200-day moving average) for nearly all risk assets is rising, albeit slowly, and most stock markets are trading above this trend. From a longer term perspective, the last quarter of 2010 was very positive, with stocks clearly breaking out of the 'decision box' (grey box in the chart) following the November election. It should be noted, however, that the 200-day moving average is now around 1150 and so the market is becoming stretched to the upside.

David Fuller's view This issue of The Weekly View encapsulates some important points. I commend it to subscribers.