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Sentiment 11/2018

During November  the global equity indices continued their fall, entering in some cases as DAX,  in a "Bear market" context  by losses over 20% from the highs.

The negativity accentuated by the collapse Brent price, due to the never-ending stress between the USA and China in terms of duties and the EU economic data in contraction has caused a violent reaction on the various assets favoring free risk investments.

Let us now  take stock of the situation using some of our guiding indicators and then define an operational strategy.


- The "Sentiment" indicator (All.1), which measures the propensity, or not, to risk on the SP500  is strongly downsizing but still far from extreme values ??that would favor a low risk entry on the stock;


- The "MQ Index" indicator (All.2) has always identified cyclical market trends. Our attention, as we will recall, has focused on the evolution of this index already for a few months. In the October report, in fact, we wrote as  the following month closing  would have been revealing about the future of the stock market. Well, as is evident, the first of two signals triggered the change in the cycle trend: the indicator (blue line) drilled down its two moving averages. The next bearish cross between the two moving averages remains to be verified. And this we will verify with the closing of December;


- The "Yield curve – Recession" indicator (All.3) that we propose this time takes into consideration a much wider time frame. This help us to understand, if and when, a possible USA recession could come back. The differential between rates continues to contract and has broken down the key threshold of 1. Historically, between the turnaround signal of the curve and the beginning of a recession,  elapse an average of 1.7 years, with an extreme tip after 3 years. Therefore, a possible recession could occur as early as January 2019, or at the latest by June 2020.


However, the operating indications on the main stock index remain valid, on which we identify a safe point  at 2490 points, the holding of which would represent a good sign of confidence for the equity .

Considering of the above, we shift our vision on the US market from "Overweight" to "Neutral" while we reconfirm the "Underweight" on all other markets.


Giorgio Giovannoni





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