Thursday 21 January 2016

Most World Indices flirting with Bear Market Territory

In the midst of a frantic scramble to liquidate positions into cash, investors and traders alike have been able to push major global indices into bearish territory with some big name nations adding to the list of those indexes that have fallen 20% from their peaks.

The markets fears have turned from China to the next step the Fed will take in its aggressive interest rate policy hike program which many believe have sparked concern from all corners of the globe. I don't think there's reason to be alarmed as the Fed knows what can happen if it oversteps the mark but the response we receiving from the market is as if it were a deer in the headlights after the Fed had taken a sneaky decision to raise rates late in December.

If we cast our minds back to August 2015 you'll recall that most of these indices had reached these levels as pandemonium had set fire to market bears with financial media rushing to be the first to call a 20% sink from the peaks. This was short lived as Chinese authorities implemented new measures to boost markets.

However the game has changed somewhat since then, for one instance the team set up to inject billions of dollars into the market must feel defeated seeing the Chinese markets collapsing into a heap after a courageous effort to heed off any bad stench left behind from the worrisome bubble created by Chinese retail traders that had left many with zero in their accounts and staring down bankruptcy.

But I think the true nature of worldwide markets at the moment is the feeling of sobering up from the elated feeling of being feed with trillion of dollars of "free money"used to artificially fuel the market and lead the belief that the situation in the world economy is all good and well when in fact policymakers were dealing with a much deeper problem of battling with lower growth and tepid inflation suggesting lack of any demand.

If people believe that US economic growth is sufficient to steer the world in the right directions they'd be very mistaken. The health of the US economy is anything but good and it's going to need more than a cosmetic makeover that politically figureheads are so famous for doing. It will require government to think about a strategic growth plan going forward that involves renewing investment in the economy through capital expenditure projects which is why I'm so hopeful after the a bill was passed that would allow for $300 billion in upgrades to US highways.

It's these kind of projects that create true value by spreading the wealth among many instead of a few as has been the case with Quantitative Easing. . .  
The battle of the bulls and bears takes a volatile turn

Admittedly seeing US stock indices being plunged 3% at one stage during yesterday's session did send a fraction of worry about what the situation we are seeing could be developing into but seeing a late intraday session bounce of over 2% upwards did leave much more to think about than merely plunging markets.

I do believe that the market is feeling exhausted from such heavy blows inflicted on it but it's wise to remember that before calm assembles back into the fray there's an exhibition of high volatility brought on by both the bulls and the bears as they tussle for supremacy over one another with the victor walking away with the bragging rights to the next move.

The bears have been in possession of most of the moves we've seen this year so it wouldn't be surprising to see a little complacency beginning to show from their camp and I think yesterday's massive bounce proved exactly that point. Stunned and shocked the bears will need to work hard to keep things on their side instead of being fuelled by the natural flow of information of the news.

Obviously we can't say what may or may not trigger the next market move but we do know that extremism doesn't last with the most likely outcome being one being caught on the wrong side while the other taking full advantage of the weak point in state.

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