I’ve been writing bearish notes on the UK market for sometime and now we are definitely in a correction.
Is it a crash?
It could be.
Here is the chart.
An optimist should say, ‘look at all the other similar moves over the last few years.
This is a reasonable case to make.
A bear will see the latest pre-slump move and see a much bigger drop.
A key thing to remember about this fall is it is not about Brexit. It is about a stock market correction in Europe and US, more exactly a correction or US crash. FTSE falls are just spill over from US fall.
So what to do.
I have not sold, though I feel a little sad about that as I would be feeling smug if I had bailed out a few days ago when I felt a strong urge to.
This is what I am thinking.
I believe there is support for the markets from central banks who while they are tightening do not want a crash to derail their plans.
They have and more specifically the US Fed has the tools and plan to step in and hold back any panic by simply adjusting reverse-QE to QE. The lever is good enough to hold the market in a long term range until they have got their balance sheet in order.
Reverse QE is now as tight as it gets and has been accelerating causing a lot of emerging market distress and this correction is likely to be simply the impact of that tightening.
It is February 2018 all over again.
I this model you can try to time this sideways market or simply sit it out on good shares to buy the dip and lighten up at the peak of the cycle without trying to get too clever.
This rollercoaster is not going to be pleasant but trying to ride it by trading could be very costly.
In effect this model harks back to post dotcom crash and a range bound DOW.
Here it is.
Clear things could go wrong, but nonetheless this market was regulated for most of the period by liquidity injections designed to hold the market in place while the economy caught up.
This is the environment I believe we are in now, so I have decided to ride it out.
That could change.