Hello friends,
A lot has happened since my last market profile, and just like that one, this new one will be brief. Markets have first slid and then gapped-down in a moment where a need for de-risking met a market not at all priced for downside risk, followed by a violent and staggering ‘up,up,up!’-rally … or so it seems, when looking at the indices only.
The market had previously been weak, divergent and top-heavy for quite some time, and Trump’s strongman tariff gestures served as the catalyst to bring a sudden onset of uncertainty and a need for cross-market portfolio de-risking into the markets, effecting a sell-off that leading stocks had already been signaling ahead of time.
Deep whipsaws and waterfall declines followed by a wild reflex rally could be observed across all major marketplaces around the globe and across all market segments. See for example the SP500 and Russell-2000 (SPX, RUT; US), the STOXX600 (EU) or the TOPIX (JP) below. In the Japanese markets, the selloff and recovery almost look like a carbon copy of the August Yen carry trade unravelling:
Important to remember here is that down-trends and bear markets quite typically give birth to the most violent and powerful market bounces. After the first selloff during the top of the dot-com bubble in 2000, the NASDAQ Composite rallied 41% for 8 weeks, just to fizzle and meander before then undercutting the Lows set in May 2000 six months later in November. After an initial compression post a sell-off, dip-and value-buyers flood the markets, expecting a continuation of the rally, sometimes pushing the indices up to ludicrous levels as high as the old bull market Highs.
Whether markets recover though depends on a few other factors than merely the indices – are we seeing a critical mass of institutional money displaying confidence in basic security market conditions, stepping in to accumulate high-quality and liquid stocks? Are we seeing quality new merchandise being bid up, stepping into the power vacuum left by the old guard?
So far, in the US and quite likely across marketplaces, there is few to none of the above. Tired bounces in damaged past leaders, funds and retailers still piling into the Magnificent 7, and all the above-described following a season of exuberance in AI and central-bank liquidity lead me to believe that markets have not yet become suitable again for heavy long positions, at least by and large.
Strength in Gold and European defense
Looking across multiple marketplaces, the only groups right now worthwhile looking at for long positions are stocks involved with the safe haven gold (typically miners operated from Australia, Canada, the UK or Hong Kong) or insurance and defense stocks in Europe and Israel.
Stay in touch with LUG, TXG, OLA or GMIN (all Canada), Australian BC8, or RHM, R3NK, MILDEF, THEON and EXA (varying European), or Hong Kong-listed 6181 (gold jewellery). However, trading everywhere is choppy and volatile, making risk management often difficult. Cut losses swiftly, start with small sizes, insist on moves driven by volume, and keep stringency high – there are no markets right now inviting to ‘plunge in’.
So long,
TGS