Technically: Equity markets around the world appear to be breaking downwards. The S&P broke through 1040 yesterday, on reasonably high volume, following a convincing breakout the day before. The range was not especially wide so this was not identified as a breakout by the system, but 1040 is a significant enough level that I can’t see an excuse for not trading. The ratio of consumer discretionary to consumer staples stocks, a very good indicator, also broke out to the downside the day before yesterday. The coincidence of a breakout in this ratio and a breakout in the main index is an excellent indicator of further declines to come. In the last market top in 2007-08, tighter stops were as good as or better than wider stops for shorting, as shown in the market personality page (red lines), so I have used a tighter stop here, at slightly wider than 1 ATR. The approx entry point is shown by a horizontal line on the intraday chart; the stop level is shown by a line on the stop loss chart. Thrust is not wildly conclusive but did turn decisively negative on both the S&P 500 ETF and the Dow around the middle of yesterday.
Fundamentally: I had been expecting a risk asset rally as the Eurozone crisis abated. That did happen briefly and I played it successfully in Asian currencies. Now, however, my concern of a week ago about a growing “recovery slowing/double dip” story is playing out. Poor manufacturing numbers around the world, including in Asia, and weak US employment numbers seem to be the main catalysts. It seems likely that a market that had been pricing a V-shaped recovery has woken up to the unlikelihood of that scenario and that risk assets therefore have a way to fall. I have taken the technical signals as an indication that that is happening.