By Klaudius Sobczyk, founder of Advanced Dynamic Asset Management
Now we are back in the volatile equity markets predicting the next big correction. As the following chart shows we had numerous of those predictions since the bull market started back in 2009.
S&P 500 Index weekly chart
Source: Bloomberg
There were few important corrections:
2011 as the European financial crises intensified and the Euro crises was pronounced to begin, followed by US credit Rating downgrade
2013 worry about the end of QE in the US and the uncertainty related to monetary expansion
2014 in October Fed exits QE3 and pronounced that next interest rate cycle will begin in 2015
2015 Greek financial crises and Chinese economic worries
Each of those events lasted but a month and the recovery took less than 2 months. The equity investors did not get their way and the next lag higher developed. Now the bull market is proclaimed dead and the new bear market should unfold. The reasons are well documented. However, let me explore what could go wrong with this expectation.
First of all the sentiment is extremely negative. Depending on the sentiment indicator used nearly all of them are at some extreme level, with put/call ratios or bull/bear ratios already at extremely elevated levels. The CNN Greed-Fear indicator which pulls together few of the most popular measures show extreme pessimism.
(See http://money.cnn.com/data/fear-and-greed/?iid=H_MKT_QL)
Markets usually do not enter bear market territory based on profound skepticism.
US Dollar begins to soften as markets discount the possibility that interest rates may not rise in 2015. Central Banks globally did not even begin any tightening and the Fed may refrain from it altogether. Bear markets are generally caused by capital constrains and monetary tightening. None of this is visible and the old saying still has it validity “never fight the Fed”.
Bonds are also an area which has been abandoned by investors. Gold has shown some signs of life as few astute investors made it very public that they invested heavily into the yellow metal. The current exodus out of equities appears to be moving to cash. As equity market sell-off continues investors move from equity to cash. It is estimated that some 8.2 bn USD abandoned equity funds and seek shelter in little profitable money market funds.
In the face of little or no return in the money markets funds and profound negative sentiment the equity market sell-off may not last much longer and any further exaggeration offers a good entry point for new investments into equities.
Klaudius Sobczyk has 15 years of experience in financial markets. Since 1993, when Klaudius became independent financial analyst, he gained an enormous experience of all aspects of the diverse world of investment management. This experience has enabled him to build a balanced judgment of financial markets which he continues to developed.
For the last 13 years he is managing Emerging Markets and Global assets.
Klaudius Sobczyk is the founder of Advanced Dynamic Asset Management in Germany. An innovative asset manager focusing on risk-adjusted performance generation using technical and quantitative methods.
He was awarded for his efforts gaining a prestigious A from Citywire in September 2011.
– See more at: http://blog.ad-vanced.de/index.php/about/#sthash.jEymnsjS.dpuf
Now we are back in the volatile equity markets predicting the next big correction. As the following chart shows we had numerous of those predictions since the bull market started back in 2009.
S&P 500 Index weekly chart
Source: Bloomberg
There were few important corrections:
2011 as the European financial crises intensified and the Euro crises was pronounced to begin, folloed by US credit Rating downgrade
2013 worry about the end of QE in the US and the uncertainty related to monetary expansion
2014 in October Fed exits QE3 and pronounced that next interest rate cycle will begin in 2015
2015 Greek financial crises and Chinese economic worries
Each of those events lasted but a month and the recovery took less than 2 months. The equity investors did not get their way and the next lag higher developed. Now the bull market is proclaimed dead and the new bear market should unfold. The reasons are well documented. However, let me explore what could go wrong with the current picture.
First of all the sentiment is extremely negative. Depending on the sentiment indicator used nearly all of them are at some extreme level, with put/call ratios or bull/bear ratios already at extremely elevated levels. The CNN Greed-Fear indicator which pulls together few of the most popular measures show extreme pessimism.
http://money.cnn.com/data/fear-and-greed/?iid=H_MKT_QL
Markets usually do not enter bear market territory based on profound skepticism.
US Dollar begins to soften as markets discount the possibility that interest rates may not rise in 2015. Central Banks globally did not even begin any tightening and the Fed may refrain from it altogether. Bear markets are generally caused by capital constrains and monetary tightening. None of this is visible and the old saying still has it validity “never fight the Fed”.
Bonds are also an area which has been abandoned by investors. Gold has shown some signs of life as few astute investors made it very public that they invested heavily into the yellow metal. The current exodus out of equities appears to be moving to cash. As equity market sell-off continues investors move from equity to cash. It is estimated that some 8.2 bn USD abandoned equity funds and seek shelter in little profitable money market funds.
In the face of little or no return in the money markets funds and profound negative sentiment the equity market sell-off may not last much longer and any further exaggeration offers a good entry point for new investments into equities.
– See more at: http://blog.ad-vanced.de/#sthash.hh30IZsZ.dpuf
Now we are back in the volatile equity markets predicting the next big correction. As the following chart shows we had numerous of those predictions since the bull market started back in 2009.
S&P 500 Index weekly chart
Source: Bloomberg
There were few important corrections:
2011 as the European financial crises intensified and the Euro crises was pronounced to begin, folloed by US credit Rating downgrade
2013 worry about the end of QE in the US and the uncertainty related to monetary expansion
2014 in October Fed exits QE3 and pronounced that next interest rate cycle will begin in 2015
2015 Greek financial crises and Chinese economic worries
Each of those events lasted but a month and the recovery took less than 2 months. The equity investors did not get their way and the next lag higher developed. Now the bull market is proclaimed dead and the new bear market should unfold. The reasons are well documented. However, let me explore what could go wrong with the current picture.
First of all the sentiment is extremely negative. Depending on the sentiment indicator used nearly all of them are at some extreme level, with put/call ratios or bull/bear ratios already at extremely elevated levels. The CNN Greed-Fear indicator which pulls together few of the most popular measures show extreme pessimism.
http://money.cnn.com/data/fear-and-greed/?iid=H_MKT_QL
Markets usually do not enter bear market territory based on profound skepticism.
US Dollar begins to soften as markets discount the possibility that interest rates may not rise in 2015. Central Banks globally did not even begin any tightening and the Fed may refrain from it altogether. Bear markets are generally caused by capital constrains and monetary tightening. None of this is visible and the old saying still has it validity “never fight the Fed”.
Bonds are also an area which has been abandoned by investors. Gold has shown some signs of life as few astute investors made it very public that they invested heavily into the yellow metal. The current exodus out of equities appears to be moving to cash. As equity market sell-off continues investors move from equity to cash. It is estimated that some 8.2 bn USD abandoned equity funds and seek shelter in little profitable money market funds.
In the face of little or no return in the money markets funds and profound negative sentiment the equity market sell-off may not last much longer and any further exaggeration offers a good entry point for new investments into equities.
– See more at: http://blog.ad-vanced.de/#sthash.hh30IZsZ.dpuf
About the author: Klaudius Sobczyk has 15 years of experience in financial markets. Since 1993, when Klaudius became independent financial analyst, he gained an enormous experience of all aspects of the diverse world of investment management. This experience has enabled him to build a balanced judgment of financial markets which he continues to developed. For the last 13 years he is managing Emerging Markets and Global assets.
Klaudius Sobczyk is the founder of Advanced Dynamic Asset Management in Germany. An innovative asset manager focusing on risk-adjusted performance generation using technical and quantitative methods. He has been A-rated by Citywire since September 2011, based on his 3-year track record.