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Global Markets Present Odd Picture!

  • Written by Syndicated Publisher 489 Comments489 Comments Comments
    March 20, 2012

    Over the years I have often pointed out how global markets tend to move together, not only moving into bull and bear markets in tandem, but in and out of intermediate-term corrections and rallies together.

    The academic studies that confirm annual seasonality also found that to be true in the intermediate-term seasonal moves.

    For instance, the 2002 study on seasonality by Professor Ben Jacobsen of the Rotterdam School of Management in The Netherlands, noted that, “Surprisingly we found this inherited wisdom of Sell In May to be true in 36 of 37 developed and emerging markets. Evidence shows that in the U.K. the seasonal effect has been noticeable since 1694.”

    You wouldn’t know that markets usually move in tandem from the current charts of a number of major global markets. What’s going on?

    The U.S. market has been in an unusually strong bull market since early 2009, and in spite of scary setbacks in each of the last two summers, it’s almost back to its peak reached in the 2003-2007 bull market.

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    That’s not true of markets in Europe, even in Germany, Europe’s largest economy and market. It still has a ways to go to even return to its level of last April before the summer collapse, and may already be over-extended above its 200-day m.a.

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    It’s even less true for Europe’s second largest economy, France.

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    Nor is the market in Canada, America’s neighbor and largest trading partner, recovering anywhere near to the degree of the U.S. market.

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    In Asia, the market of the world’s second largest economy, China, has also not come close to even recovering to its peak of last April.

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    And the market in Japan, the world’s third largest economy, has also not returned to its level of last April before the summer correction, and is a long way from seeing its 2007 peak.

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    Meanwhile, India recovered all the way back to its 2007 peak in 2010, and has been trending down for two years.

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    It is a picture of odd divergences among the world’s major markets.

    Questionable reasoning.

    We went on a buy signal on the market in both of our strategies and portfolios last October. We’re now cautious and watching our indicators closely, but we don’t have a sell signal.

    And the rally may well have further to run.

    But some of Wall Street’s reasons to expect it to run further are questionable.

    For instance, that investor sentiment is always extremely bullish at market tops, and extremely bearish at market bottoms, is basic Investing 101. Yet this quote this morning from an executive at a well-known brokerage firm:

    “This rally has further to run. Investors are still incredibly complacent, no anxiety to sell. We haven’t been this bullish for a long time.”

    Well, we know you haven’t. The Investor Sentiment Index from Consensus Inc. measures the sentiment of brokerage firms and professional advisors. Consensus Inc. identifies the 75% level as “overbought bullishness indicating a reversal in trend may be imminent.” The Consensus Index was at 76% four weeks ago, and 77% and 78% in each of the last three weeks.

    Yet this guy is super bullish because – well, because everyone is so bullish?

    Insiders Are Still Selling.

    Trim Tabs Inc., reported last week that corporate insider selling is running at 13 times their level of buying, which is 8.6 times normal, and the highest level since the market peak last April.

    Just another reason to remain alert amidst all the euphoria. 

    To read my weekend newspaper column ‘There is now a new type of ‘wall of worry!’ Click here.

    Images: Flickr (licence attribution)

    About The Author

    Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily Internet blog at www.SyHardingblog.com. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!
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