East to West: Caution

Markets settled after the sharp fall of the previous week but a hint of caution was evident, with buyers wary of being caught by an after-shock. It should take several weeks for sentiment to settle back into a semblance of normal routine.

Short candles were common, as on South Korea’s Seoul Composite Index, with buyers displaying a lack of enthusiasm.

Seoul Composite Index

The long tail on Japan’s Nikkei 225 Index reflects buyer support but the large overlap with the previous candle suggests hesitancy.

Nikkei 225 Index

China’s Shanghai Composite Index likewise displays a short candle below the new resistance level at 3250.

Shanghai Composite Index

After a strong bull run India’s NSE Nifty Index is surprisingly hesitant. A close below the rising trendline would signal a test of primary support at 10000.

Nifty Index

DJ Euro Stoxx 600 shows a stronger blue candle but is still testing resistance at 380.

DJ Euro Stoxx 600

The Footsie shows a similar pattern, with resistance at 7300.

FTSE 100

In the US, bellwether transport stock Fedex respected support at 230. Follow-through above 250 is likely and would signal resumption of the up-trend, a bullish sign for the economy.

S&P 500

Canada’s TSX 60 respected primary support at 880. Recovery above 920 is likely and would indicate a test of 940.

TSX 60

Patience is required to weather the uncertainty of the next few weeks without making knee-jerk decisions.

4 thoughts on “East to West: Caution

  1. Solomon says:

    Colin : Given your apt Benjamin Graham quote of today, should one not just sell ……. now ? I think so. It appears that talking to one’s book, convincing/appeasing one-self otherwise than the market history of *the most extreme valuations ever* dictates, is playing with fire.

    Finally, no one went broke selling too early = especially relevant now given the nine year given tenure of the market that has gone full cycle from extreme pessimism in early 2009 to euphoria now ; euphoria as expressed by outstandingly low VIX and outstandingly high ratio of bulls/Bears and most extreme valuations ever , in terms of John Hussman’s very reliable work =
    1. https://pbs.twimg.com/media/DV67jLXUQAAddct.jpg:large
    2 .https://www.hussmanfunds.com/comment/mc180201/ [ Note: refer the amazingly convincing correlations ]

    Mate: Sell this market on rallies, now.

    • ColinTwiggs says:

      Time to sell is when there is a recession looming on the horizon. Not when corporate earnings are growing at 20% p.a. and the global economy is waking from its slumber. Stocks are over-priced but as Keynes said: markets can stay irrational for longer than you can stay solvent.

      John Hussman has been predicting an imminent crash for years. I enjoy reading his research but then evaluate contrary evidence that tends to refute his bear view.

      • Solomon says:

        It’s the correlations that I refer to, and that is what actually matters, in John’s case. You fail to rebut that. Regards.

      • ColinTwiggs says:

        Scales for Market Cap/GVA and S&P returns are not proportionate. They have been adjusted to make it seem like a good fit.

        Also, why take 12-year subsequent returns of the S&P 500? Was 10-year not a good enough fit?

        Equating Market Cap with the S&P 500 is likely to distort. The index should grow faster than Market Cap because of buybacks which boost EPS growth in the index.

        CAPE is distorted by losses in 2008. This will significantly boost 10-year average earnings next year and reduce CAPE.

        Not saying that stocks aren’t over-priced. I believe they are. But we need to beware of confirmation bias.

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