• A longer-term view of the markets

    We have been dealing with bipolar markets since so many months now that we have almost forgotten how a normal market behaves. Just as a small reminder, a normal market is a market where future expectations of price movements are based on a projection of companies earnings in the context of interest rates evolution.

    Today, we have a fully blown Fed QE combined to a Go/NoGo US/China trade discussion that are driving investors to blind trend following.

    We can however see below that bounces have been attracting a decreasing buying interest.



    We are starting to develop here a pattern that is very similar to last August's pattern just before the 10% price drop: a slowly weakening 20DMF. Extrapolating the current trend of the weakening MF easily leads us to a pullback in January 2020.



    In the meantime, we can see that liquid double long index ETFs such as SSO/QLD are being sold. I believe that this is a sign that investors are hedging their long positions by opening short trades in these leveraged ETFs.





    As I do it once in a while, I post below the 12 months daily price/volume return on the S&P500.
    We can see that since 2009, when the 12 months return exceeded 10-15%, the markets were often regarded as overbought and prone to pullbacks. Before 2009, overextended markets had to reach a 12 month return of 20%. The difference is simply that before the FED QE, markets experienced deeper pullbacks and shorter uptrends. In our more regulated markets both uptrends and downtrends seem to be limited to +/- 10%



    A zoom on a more recent period is shown below