A ROCKY PATH


TO NOWHERE The equity market has had a jolly good rally since the wobble in December. In Fibonacci terms, as of at the time of writing, the S&P is just a gnats breath above its 50% retracement, which is where all of the Fibonacci family would ask if enough was enough.


As readers will know I am always interested in the speed of the move as much as the move itself. Alongside the speed, the volume of trading within that move has validity as well and most important is the positioning before that move.


 which was up sixteen out of seventeen days since December 24th, one of its best runs in 100 years. The downturn in markets, however, was led by the energy and banking sectors so the bounce is a bounce,  tended to continue.


The S&P bounce, 50% retracement, was one of the fastest in history. On average this has previously taken 39 days, the present move took only 16 sessions. If we look at previous times when the S&P has fallen at least 15% and rallied 50% without falling to a new low, we are tied for 3rd place. This alacrity of bounce has not tended to be good for future returns.


Chart 1


The other three occasions that rival this in speed were 1937, 1982, and 2011. In 1937, it squeezed higher for a few weeks then plummeted. In 1982 it was one of the most powerful bottoms of all time, and in 2011 it rallied for a couple of more days and  resolve. Volume is important and the retail money in all the above examples was vital to whether we were 


From the expiry in September 2018 until now, has been a volatile time. The extremes of price movements in major asset classes, when compared to many historic equivalents has been extraordinary. So it is even more surprising that most of the resulting price and positioning levels we have now reached could be seen as neutral.


When many people are all positioned the same way and it goes wrong, rarely will you see any of the zealots blaming themselves. When hunting for  inwardly and so it has been during the recent shenanigans.


In Q3 2018, the positioning and sentiment had become totally consensual and likely very leveraged. How much easier it would have been in 2018 to have simply not raced all asset classes up so much  year bond yield ended the year, pretty much where it started it.In treasuries we had never seen such bearishness (we had never seen such bullishness in in mid-2017). Of course, despite this being a massive ‘follow my leader’ trade, there were hints  were raising rates. The economy was super charged by Trump’s ‘enthusiasm’ and prices did seem to be picking up. The market was trying to return treasury yields to more neutral historic levels, but in doing so the positioning level was anything but. The speculative positioning had hit unprecedented levels of bearishness. There is always danger when short term enthusiasm towards an idea outstrips longer term stoicism.


Source: Bloomberg


THE S&P BOUNCE, 50% RETRACEMENT, WAS ONE OF THE FASTEST IN HISTORY.


4 | ADMISI - The Ghost In The Machine | January/February 2019


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