Most are not. Well, except buy and hold crowd. And sentiment is reflecting that. Many sentiment measures and indicators are, with some variations, showing that people are sceptical about future expectations at best, where majority is very concerned and some are expecting a 2008 crisis style repeat.

I was talking to a director of a company the other day. Their business is closely linked to German industry, so he’s feeling the numbers coming from there. What fascinated me most was not his outlook, but the conviction he has. He’s absolutely sure we’re going down, there’s no doubt about it. He was pounding the table the markets will crash and not one single person could prove him wrong. Man, the conviction level was mind blowing.

If the meeting’s circumstances would be different, I’d invite him to take, under some conditions, an opposite side of a trade with me.

It’s hard to deny the current weak economic data coming from different parts of the world. There’s no doubt we are/were seeing an economic slowdown. However I’m trying to be open minded and am wondering if this was it, if data is about to start improving contrary to the popular belief that it’s going to get drastically worse.

What’s happening currently is typically seen at market bottoms. For example

  • economic data is very weak, it’s at levels not seen from 2008/09 crisis,
  • despite indices flirting with all time highs sentiment indicators are as negative as at major market bottoms,
  • investors are waiting on the sidelines sitting in cash as if we had just gone through a major correction,
  • central banks are just starting to stimulate economies around the world again after a period of tighter monetary conditions.

Then there is also evidence of risk appetite starting to emerge as well.

  • Should markets be about to roll lower, would we see European equities catching a bid? We’re talking about countries that are probably in the weakest group of developed markets, and should be leading us lower if the bears were right.
  • Should markets be about to roll lower, would we see Chinese A shares index catching a bid? These are the best Chines stocks and are available to foreign investors the easiest. They should be leading us lower too should market participants be so concerned about the future outlook.
  • Should markets be about to roll lower, would we see cyclical and risk on stocks, such as semiconductors, to outperform? I don’t think so.

Here is a daily chart of iShares MSCI ACWI ETF. It’s a broad based index that has an exposure to stocks worldwide.

Tell me, does this look like the prices are about to crash? I don’t think so. Should the markets be rolling lower soon, we’d need to see a much different price action.

ChartingTrades.com is a blog of CT Capital Ltd.

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