I’ll get to the headline later, but first of all: things are not looking good. Some Committee managed to under perform even the expectations of how badly they would fail. Germany’s latest bond auction was a spectacular failure. US GDP figures is causing bloodletting on the markets. China PMI (!) falling. frowneys all around, and tomorrow we have Thanksgiving = closed markets and nothing to be thankful about in this regard. In all of this mess, what is the scariest part of all?
That there is nothing that will save us now. No summits, no massive central bank printing, no changes of government, no prospect for policy changes or massive currency intervention will swoon in to save the day until things get much worse. On top of all of this, the market is quickly loosing confidence in any of these measures being effective, stuck to, or managed remotely well. This lull, where markets are in freefall and there is little policy to hinder it, leads us to the next stage of problems.
Some people *cough*Ellioticians*cough* would say that this could lead to the next leg of the downturn, where markets lead the economy down further and you get some pretty interesting mechanics in realized losses and follow up effects as financial firms scramble to raise capital and this process together with lacking confidence pulls down the real economy, and assets fall further as well as confidence and… wait for it…. catch 22! The fact that it looks like people have started waking up to the reality of the uselessness of normal investment ratios at the moment only enforces the negative pressure stock markets should see. With things looking increasingly messy in increasingly many places all over the economic world, I’d ask the Ellioticians to go with the flow and throw out their analysis tools which kinda work in normal times.
We’re not going to see the next leg down. We’ll see a whole spider. A big, hairy spider.
With that disturbing image in mind, lets take a quick look at another. I present to you the HSI, and why no policy support means freefall:
Now, we can basically see the MACD going towards a bearish cross below the zero-line on the daily candles measured over month vs quarter time frames. We’re below 18000 (closed below this line 9 other days, 8 other days below current market price) and of course the quarterly EMA/SMA bullish divergence will fall unless there’s a quick rally. The remarkable thing is how flat the EMA stayed, and that the SMA never rose during the divergence, which is also, as if you need a reminder, highly bearish. I’m wondering if 15600 is a bearish enough call given this picture and the fundamental lack of support, but crushing 17600 and even 17000 will be really easy in this environment. Again, volatility indices on a world basis are also not extremely elevated, so traders are playing it safe and this does not at all look like panic. Brace yourself, and get short!
Our spider senses will all be tingling…