When bounces are meant to be sold, you know you have entered a bear market or a dead cat. This is the key lesson for 2018 and it changes the paradigm for passive and algorithmic trading systems, writes Bob Savage on Thanksgiving eve.
The summer mantra of buying-dips has shifted. The long winter for a number of markets is upon us early.
The $1 trillion drop in market cap for the FAANGs (FNGU) and the sharp drop in oil prices lead the price action of the last 48 hours but not the last 12.
The roller coaster of markets is climbing the wall of worry into the Thanksgiving holiday.
The list of worries remains significant – for Europe you have:
1) UK May-Juncker talks, UK Labor opposition to the Brexit deal and ongoing Tory splintering over it.
2) The Italian budget issues come to a head today, with the deputy PM Salvini saying, “The League rules out revising the fiscal plan,” but then revises his approach suggesting he is willing to talk after the EU rejects the 2019 budget. The ISTAT forecast for 2018 growth in Italy was cut to 1.1% from 1.4%, but sees 1.3% bounce for 2019.
3) For the U.S. it’s still about China and the trade war with a new report from trade representative Lighthizer’s office accusing China of ongoing IP theft. Throw in expectations for an FOMC hike in December despite ongoing market volatility and risk-off globally.
But this is where hope rests for the day with rate policy reactions to the present financial distress not so clear for 2019. The present price action in forex reflects this story and the U.S. dollar (USD) rally that extended Tuesday despite the equity/oil rout has reversed a bit today with focus on the euro (EUR) remaining central for trading the markets – with 1.1550 needed to prove any sign of real hope for a bounce to become a counter-trend rally.
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