The vibe is changing
The vibe is changing. It’s been a great rally but I can see (on the charts) and hear (in the media headlines) the herd stopping to think about what’s next and it’s probably not great. As Henry put it, we always come out of Easter fat and happy, then it all goes wrong. What is spooking Henry perhaps is his innate understanding of this chart which is the seasonal chart of the All Ords since 1988 not including this year. As you can see the market usually peaks at Easter and drifts until late June. Specifically, the chart peaks on April 26 – and bottoms on June 27. Whilst I abhor the use of past statistics as a prediction for the future and I would never sell a thing on this sort of weak voodoo alone, it is mildly interesting - we are running into the gloomy zone of the stock market’s calendar year. This morning we have done a bit of cashing up. Not a lot, just some profit taking on recent highly profitable positions. The logic:
- We want to run up 15-20% cash so we outperform if the market tips over again and have some cash to deploy when it does.
- We are a fund manager judged on relative performance, so for us holding 20% cash means we outperform a falling market.
- The ‘pause’ we detect not a significant pivot point as it was at the top and the bottom - this is a slowdown in a high velocity recovery rally.
- The herd is sobering up. You can hear it in the headlines. The bulls are tiring.
- The rally has been a sentiment recovery – that only lasts so long.
- The one metric that turned the herd was those exponential curves flattening. This flattening is now ‘in the market’. Discounted.
- To follow through the rally needs to be supported by "value" as well. Value is currently unknown. Earnings are in flux. There is no reliable foundation to the market yet.
- The economic headlines are going to deteriorate significantly from here. Jobs numbers, consumer spending, retail sales, GDP, they are all crashing. We just haven’t heard the numbers yet. They are coming. In fact they are here...this is from our Overnight US Market commentary this morning:
- The next few weeks are going to be littered with company announcements as they (try to) quantify the damage for us. That’s unlikely to be pretty.
- Charts – Some market and stock charts are topping out for the first time since the bottom.
- Notably Australian market charts are OK for the moment, no sell signals but we may not be in the lead any more. Some of the European markets fell hard overnight. Italy down 4.78%. Germany down 3.90%. We were beginning to get back to normal, this is not ‘normal’ - the herd is turning in Europe.
- VIX volatility index up 8% overnight. First jump in a while. Not significant yet, but watch it.