The ebb and flow of markets are one of the great wonders of the universe.
Encapsulating far more human emotion than actual economics, and that is the challenge, the fun of it all.
Even as a bear on stocks, I am tempted to be a buyer on the day. A quick reversal plan, of course, is always at hand.
Markets have simply priced in about as much downside as they can for the moment.
There are still upside arguments, but they mostly rested around “well, things always go up, right?” Not a plan.
For the moment, it appears the recent downward swing of the pendulum may have reached its zenith. We will gain clues as to the extent of the next down-swing, by the nature, character and strength we see evolve, in this now just starting upswing.
The hidden pendulum is more of a timing thing than price, though the price is most certainly involved. Given, that I still see a bigger down-trend for an abundance of fundamental reasons, my expectation is for five to seven trading days of slightly higher, but mostly sideways price action around current levels.
The market certainly has the potential for a price upswing, given the Oil price is now falling away post that OPEC meeting.
It also helps stock prices in the USA, which the US Trade Deficit diminished markedly yesterday. The problem with the still concerning trade deficit nonetheless, is that it incorporates high natural gas exports in support of Europe. This means sustained higher gas prices in the US domestically.
Of most concern in yesterday’s trade numbers though, is that imports dropped a rather scary 2.9%. This suggests domestic demand in general may be starting to drop away, and that this drop could become alarming. A sign of inflation beginning to crimp consumer and business behaviour alike.
The bulls will be keen to recognise yet another great bottom hope, as they have all year numerous times. Eventually, they will be right in a short-term sense. On this occasion, I expect the reaction pendulum bounce to be somewhat more muted than in the previous huge rally that we saw. Remember that was based on what we always said was total nonsense of hopes of a Fed pause, or even ‘pivot’.
The global economy is slowing. We have not seen the bottom of this powerful economic correction yet, and therefore we do not know how severe the general economic climate may become.
On a medium to long-term basis, stocks have plenty of downsides still to travel.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
