With the current price adjustment since Fri, market cap over GDP has reduced from 159% to the now 156.7%, US equities are still 3.1% overvalues compared to fair value. Asia and EU are performing better than expected considering y'day slide in the US, DOW futures his a low of 26,712 pre-market today (during EU session). In the absence of new factors, I call a floor in the DOW around 26,500 for now, March might see a new round of adjustments if, as anticipated, companies start issuing profit warnings ahead of reporting.
I think any dead cat bounce recovery in Feb/early March will be followed by a 25,100 on the DOW (could even go to 24,100 (-18.5%) if additional factors get introduced) before a meaningful reversal is seen.
Interesting to see the mindset of traders... Europeans were upbeat pushing markets up, on EU close the US exerted their pessimism and the sell-off continued bringing the EU futures down also. Overall, very volatile sessions but the average of all markets ended on neutral. DOW had 800pt swings, the worst performers were the small caps losing 1.6% for the day.
FTSE100 has revisited the Dec18 Lows and is 2% away from bear territory, it and the IBEX are the worst-performing markets during this sell-off. Ironically the HSI is one that is holding up well considering they have a double whammy to deal with. I have t/p on both my FTSE100 & HSI50 Shorts, the MIB & IBEX are also close to being closed, the US shorts are still at play although a minimum $150k profit is being protected in case of a reversal... see how far they can be pushed till they get to "good enough"
The VIX has just clipped 40, it has not hit this level since the Financial Crisis! It's now serious. What a difference in sentiment a week can make... no new factors were introduced into markets over the week, everything that is there today was there Thu week when new highs were made, no new news, just a realization of the issues can turn a market from bull to bear. Those that saw the writing on the wall should have had a very profitable week, hope you were one of them. Trading the Indices on Fundamentals
On 17th Feb I made the call to expect a 17% to 18% correction (based on the DOW), Fri session hit that target for the DOW so I unwound most of my DOW, FTSE, IBEX,NIKK & HSI shorts holding on the S&P, NDAQ & RUSSELL shorts as I belive those got a bit further to go. It is possible that the selloff will continue to the Dec 2018 lows, however, my view is that another 4% is probably the floor. My strategy now is to buy the daily dip and hold, I will continue to do that until markets are consistently making higher lows. I estimate that 60 to 80 contracts will be filled for both US and EU indices on this strategy... a very simple strategy that, if it goes to expectation, when the recovery happens, it will double the 6 fig profits made on the shorts. If things go pear-shaped, I will be hedging the longs rather than using STOPS. (Anyone that's been following my strategies knows that I apply the Madallion method i.e. develop a clear view then let the objective reach no matter how long it takes (I was net short for 7 months before the objective was reached, when reached, the pay was substantial, while I wait for the main objective, I day-trade the high & low of the previous day)
It was been a mighty week. When your charts default to 50 and 100 point intervals things are really moving. I hope you had a good week. I have never seen anything like it but if every week was like this.... life would be good!
As wild as it was, it was orderly, very unlike a flash crash, it was the correction "we had to have" as senseless euphoria had brought markets up to an unsustainable 158% of GDP (the historical average is 140%). US markets are still above the average so another 4% to 5% is likely although history also tells us that overshoot is likely and this could touch the Dec 2018 lows before a recovery. I did indeed have a good week as I had unwound my longs at the Thu 20th highs also increasing my shorts so I was heavy short when it all started. Now starts the cat & mouse game in trying to catch the lows ride the recovery wave. I know your play is more about the daily movement rather than the big picture, I presume, therefore, that until the floor is reached, your game will be less stressful than mine. I wish you prosperity during these times of high volatility.
Fri had a rally at the close which was unusual for a Fri and imprudent under the circumstances, Powel spoke and I guess Fed anticipated action was the cause of the rally by those players oblivious to the economic effects the coronavirus can have, however, on Sat the US had its 1st coronavirus death, a sad event but one that might shake some sense in the perma-bulls. BTW, I think that mentioning body counts is insensitive and making light of a tragedy brings bad karma, I won't bring it up again. .