because of the beginning year very strong volatility, I decided to write this post to analyze long term trend in main asset classes (S&P500, Euro Stoxx, Nikkei, euro and US HY, Emerging bonds, euro and US govies).
I do it monitoring the long term moving averages (on monthly basis) that are less "manipulable" by algos. Of course they continue to have the classic moving averages defects.
I decided to write this post because fundamentals are getting worse: US data are disappointing, China data as well and crude oil is collapsing. I don't go into further details unless someone ask me it explicitly, but what one must realize is that there are 2 opposite long term scenario for 2016-17
The First one is that this year is just like 2007/early 2008 and we lead toward a global recession with a drastic drop in the asset valuations
The Second one is opposite. Now is the scariest moment (like in 2011) but world will avoid recession and equity markets will return in an uptrend.
Have a look at the following moving averages and you'll see that we are in a situation similar to both 2007 and 2011. In stocks markets the moving averages are beginning to reverse down and prices are already below. But moving averages didn't cross yet on stocks.
S&P500: reminds 2011 so far
Euro Stoxx: high volatility just like in 2011
Nikkei: similar to 2008, but is choppier than other indexes
Emerging bonds $: trend still up, stronger than 2008 so far
Euro HY: weakening signals, trend close to reversal just like 2007
Euro governments 7-10y: trend is up
Treasury 7-10 years: trend is up
US High Yield already in downtrend like in 2008
In summary equities markets are now in downtrend, just like US HY.
Euro HY are on the "edge" of downtrend, while intermediate govies continues to trend up
The long term trends send a warning signal but, on the other side, the very high oversold equity situation offers a chance to play for a rebound.
In my opinion, I continue to be optimistic that the world will not fall in the recession this year. On the other side, we have now a more crowded situation on risk assets, because of negative rates on short term bonds and this increase the risk of flash crashes. Sovereign funds are probably selling strong too because of crude oil drop.
I think that I'm going for myself to play a rebound for march, but using a bull call spread. That's because if I am wrong, the downside is high. An entry level could be around 300 in the Euro Stoxx to play for a 5% rebound. (use it for timing on Dax or Ftsemib or eurostoxx 50)
And I'll continue to allocate monthly like usual the rest of capital.
Stay tuned, markets in 2016 are going to be interesting.
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