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Sentiment 12/2018


The market scenario is further complicated not only for the large losses recorded on almost all assets,  exception for  gold and US government bonds, but due to the contrasting signals coming from various indicators and recent macroeconomic data.

Let's start with the bmk SP500 index with monthly scan (Annex 1).

The bearish target, which we indicated in the strong dynamic support at  2490 points splitting uptrend from downtrend, was fully respected. From there an upward reaction started  while European markets  were closed  for the Christmas holidays. Unfortunately, the fall below key levels has generated sales orders (read stop loss) except then assist , with disappointment,   at rapid reversal .  But we cannot exempt ourselves from maintaining a strict risk control in a delicate phase of the markets, as we will see below.

The "Sentiment index" (Annex 2) , that last month was still far from the most suitable values ??for a return on shares, in coincidence with the strong sell off of December  achieved attractive levels for a risk off.  But we must note that the coincidence of an important minimum on SP500 with the simultaneous, and fast, achievement of a minimum level of the indicator does not testify  in favor of the  rebound.  As a rule, index minimums do not immediately coincide  with lows of the indicator (see minimums level in 2015-2016 and 2018). This makes us suppose that the new  uptrend is not entirely genuine or, let's say, "to be driven".

Let’s end with our proprietary indicators  M.Q Index (Annex 3) and Worldwide Stock Exchange Participation Index (Annex 4).

As known, the MQ Idx last month provided the first warning signal with the descent of the indicator below its two moving averages.  So we waited  the December close  to verify the occurrence of the second and decisive condition with the perforation of the slower moving average by the fastest MM. This condition did not occur leaving the scenario uncertain.

The uncertainty is also confirmed by the other  indicator  which, even if it travels below its fastest moving average, is still positioned in a long-term uptrend but behind strong dynamic support.

What conclusions can we draw from the foregoing, also for  the fall in macroeconomic data on the major economies, including America?

We believe  the rebound   can continue also due to the level reached by the Sentiment Idx and as a natural reaction of the strong oversold, but we do not believe it can generate a new uptrend.

Now we are very cautious  and suggest  the exploitation of the rebound to gradually lighten the equity positions and, if you want to remain invested on equities , prefer value stocks.

In view of the above, we maintain our vision on the US market in "Neutral" and confirm the "Underweight" on all other markets while we continue to prefer  investment in Gold and  USA Tbond.

Giorgio Giovannoni