The UK stock market is only 300 points away from crossing the crash marker of a drop of 25%.
From a high last april of 7122 it is now 5632. This is a 21% drop.
Much of this has been caused by the collapse of commodity prices and oil wich are heavily represented in London’s FTSE 100 big cap index.
This leaves the potential for much greater falls as US indices begin to slump.
If the is a broad market rout the London markets could suffer a historic drop unless my some strange magic allows the resource stocks to make a surprise comeback.
The ongoing capitulation of the tech heavy Nasdaq indices does not bode well for London as the FTSE big cap index has plenty of highly valued stock capable of being re-priced in a crash.
The Bank of England once hawkish on interest rates has suddenly turned dove, holding the pound low and hurting the value of its equities from a global currency point of view.
They clearly fear a recession.
I use the Lonsdon small cap index as a good indicator of the real market, free of currency and commodity, option and futures interference. It provides a clear picture of the markets trend.
Its not looking pretty.
With a further collapse of oil underway, US indices looking badly wounded, it will take some new situation riding to the rescue to stave off a US and European crash.
In a financial intervention-alist world many will be waiting to hear the bugle of the cavalry galloping to the equity markets rescue. Buying the dip has been a great tactic up till now. One day that is not going to save the day and to me, this current market move has potential of being that moment.
Euro and Yen are both signaling rampant fear in equities and Gold is flying high, a triple threat.
Recession is back on the agenda and it must be grasped that the market sees a year or so ahead, so stocks may well be showing us the unfolding of the economy of 2018-19.
The global economy is still unable to produce the monetary liquidity it requires that was once produced by the banks securitizing assets and the attempted segway by the Fed from being the liquidity provider of last resort, is dragging down assets prices.
Will the Fed comeback and start Q4 or will it let the market do its job?
The charts couldn’t be nastier, so sitting on the sidelines to BTFC, (buy the flaming crash,) is all I want to do.
The central banks which are in effect regulators, can keep interfering but at some point the market has to cleanse itself and 2016 looks like the year its going to do it.