Inventory market surge in every single place
Inventory markets world wide – notably in Asia – proceed to surge. The typical nation’s inventory index is eighteen% above its 200 dma! That is the best studying in over a decade:
*I calculated this common utilizing the next international locations’ indices: U.S., Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, HK, Eire, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, UK, Brazil, China, India, South Korea, Mexico, Taiwan, Russia.
When so many inventory markets world wide surged prior to now, the S&P 500 (which accounts for roughly half of world market cap) often rallied a bit extra over the subsequent 3 months, adopted by a pointy pullback.
Excessive volatility is to be anticipated within the coming months. The overextended rally can overextend even additional, however nothing lasts endlessly.
SqueezeMetrics publishes a wonderful indicator known as Gamma Publicity. In a nutshell, Gamma Publicity refers back to the sensitivity of current choice contracts to adjustments within the underlying worth (of the S&P 500). Excessive values are bearish and low values are bullish.
It’s higher to have a look at Gamma Publicity as a ratio vs. the S&P 500’s worth. Right here’s what occurs if we divide Gamma Publicity by the S&P 500, after which take a ten day transferring common:
It is a bearish studying. When this occurred prior to now, the S&P fell -7.3%, -7.9%, and -31% over the subsequent 2 months from the place the S&P was as of that date:
Treasury bonds falling
The ten yr Treasury bond ETF TLT’s 14 RSI fell to the bottom stage in additional than 2 years:
Traditionally, such excessive oversold readings weren’t quick time period bullish indicators. As an alternative, TLT often washed out oversold momentum earlier than heading decrease over the subsequent month:
U.S. Greenback Reversal
The U.S. Greenback rallied 4 days in a row from a multi-year low:
In consequence, many contrarian merchants imagine that this the beginning of a protracted overdue rally. Traditionally, this wasn’t at all times the case:
However maybe this time is totally different, on condition that speculators are traditionally bearish in direction of the Greenback:
My market outlook
Right here’s my market outlook based mostly on 3 totally different time frames:
- Long term investors must be extremely defensive proper now. This speculative bull market could final one other 6 months and even 9 months, however in 2 years time, long run traders might be glad they didn’t purchase immediately.
- Medium term traders ought to go neither lengthy nor quick. Wait. Danger:reward doesn’t favor lengthy positions proper now, whereas shorting right into a speculative rally can finish in catastrophe.
- Quick time period pattern followers ought to proceed to experience the bull pattern as a result of nobody is aware of precisely when it should finish. In a extremely speculative setting like immediately, probably the most worthwhile merchants are quick time period pattern followers who commerce markets with robust animal spirits. In case you are a brief time period pattern follower, you should use stops.