Friday, August 20, 2010

Market Outlook after recent selling

Behavioral & Technical Aspects:
  • Stock Markets around the world have been pushed back from their upper resistances. 
  • After that, bad and some even worsening economic news from the U.S. have led to more serious selling.
  • Market breadth is now deteriorating and the "Hindenburg Omen" has been triggered two times. 
  • All this has led to increased volatility and investor irration has been increased.
  • Attention: the market trend is sideways to down, so "buying the dip" is not as riskless as it was between May 2009 and May 2010.
  • If S&P500 supports around 1060 to 1020 don't hold, there is an increasing risk of accelerated selling.

  • Equity valuations are relatively cheap if earnings can be kept at this level.
  • As the economic outlook bleakens, sophisticated investors are most likely demanding ever higher risk premium in order to engage in the markets again "big time".
  • Bonds are highly overvalued and overbought and offer very little yield. The dividend yield for equities is becoming better, therefore relative equity attractiveness is slowly rising, while there is plenty of money available.
Bottom Line:
  • We are looking for a buying opportunity later in the year, but we suspect that markets need to slide a bit more if valuations should be comfortable enough to attract institutional-size buyers again.
  • We are staying within a risky environment.

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