Monday, April 18, 2011

Equity markets: slowly deteriorating?

Out indicators signal that after the post Japan-Crash-Rebound, short-term equity market risk has rebounded quickly and - despite recent weakness - is approaching the February 20 levels again.

US Earnings reports have started OK so far, but do not seem to provide massively positive surprises (yet?). At the same time, people start to ponder about the consequences of QE2 ending - on both the stock market as well as the bond market (which would of course produce spillover effects into the stock market).

Therefore, stock markets are likely to have entered into a new phase, which might be characterized by higher volatility and less smooth uptrends going forward.

Important to note that for the first time since the November 2010 correction, aggregate medium-term Institutional sentiment is deteriorating, while indecisiveness and irritation among investors has risen quite a bit over the past 5 days. This builds potential for a sizeable move into either direction.

Bottom Line: a second downleg in the correction which started around February 20th could be developing and we advise caution.

On a side note: Market Cycles (experimental technology):
A possible upcoming turning zone could be around April 25-28.
In addition, our cycle forecast highlights the time window of Mid-May as an area of potential instability.

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