22nd January - stocks at the end of the week
26 January 2016
TECHNICAL:
Monthly S&P futures continuation chart
The topping out of the S&P throughout 2014-2015 has created a wide trading range.
It is not a clearly broken range.
For that to happen there would need to be a monthly close beneath 1850.
Monthly chart Nikkei futures continuation
This rather more bearish.
The falling back through the Prior High support 18320 from 2007 and the breaching of the support from the top of the bull continuation triangle looks weak.
Weekly chart FTSE 100 futures continuation.
And this is more bearish still. Note the multiple bear factors:
FUNDAMENTALS:
The sell-off in global equity markets that took hold in late December 2015 and threatened to enter bear market territory was brought to a sudden halt last Thursday.
Why?
First, we need to understand what caused the sell-off in global equity markets from China to the US and everything in between. In a nutshell the Chinese economy continues to produce data showing a slowing economy. And, although the authorities have tried to explain it away as a natural rebalancing of the economy away from manufacturing towards domestic consumption, investors were unnerved. So much so that the main Chinese equity marked sold off hard and forced the authorities to halt trading for a period and ban short selling. But sentiment failed to improve.
Casting around the world all is not well with other leading economies either.
In Japan, the economy continues to defy attempts to resuscitate it to the extent where the Bank of Japan may have to consider fresh stimulus.
In the Eurozone, the economic recovery remains fragile, despite an ECB QE program.
And both Russia and Brazil, two economies of which much was expected, are both stuck in recession, albeit for different reasons.
Then there is the UK – a economy that has been the fastest growing in the G7 but is now showing signs of cooling. So much so that Bank of England governor Carney has all but ruled out a rate hike this year..
And so to the US. The Fed delivered its first rate hike in December and markets thought more would soon follow during 2016. But data has definitely cooled and the Fed is expected to move more cautiously. But if data cools much more, questions will be asked of the Fed’s judgement: should they have exercised greater patience?
So what has turned markets around? Is the bear market over? And should we all buy into the rally?
On Thursday ECB President Draghi let it be known that the ECB could ease further in March and that has turned market sentiment around. But will it endure or is the rally a correction?
The sell-off was driven by anxieties about Chinas economy, not the Euro zone’s. In fact, traders were already speculating that the ECB may need to do more. Indeed, when the market reacted negatively to the extension of QE from September 2016 through to March 2017 , Draghi had hinted as much.
What we are seeing in the current rally is relief. Traders have been thrown some positive news and the selling has stopped. Some profit-taking kicked in. Some shorts were forced to cover – so the market rallied..
When the dust settles and traders look around at the economic landscape they will see little has changed. China remains a concern. If US economic data doesn’t pick up, the US too will be a concern and the vague promise of more ECB largess in March might be to long to wait.
In summary we see the rally as a dead cat bounce that will lead to fresh selling opportunities..
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8th February - Conditions for a Gold bull market 
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14th January - Gilts may go further