Stock Market Continue to Seesaw

The Week that Was

World stock markets saw the panic of the last 8 weeks subside, not reverse. The S&P 500 has hit a support level 2635 twice. Traders attempted twice to bring the price lower than this level but failed. This is the level that, were it to be penetrated from above, and remain below 2635 for more than a trading day, (meaning that US markets would halt the declines, Asia would follow suit and the so too the Euro zone one after the other with no exception) we could and indeed can, as it has happened already, expect to see an end to the sharp panic-filled falls that have roiled the markets for the last 2/3 of the 1^st quarter of the year.

The S&P at press time has lost 8.43% since the beginning of February. The declines had reached 12% at its 2 worst points. Very similar patterns were traced in all of the major indices globally. We ought to keep two characteristics of this past phenomenon fore frontlets between our eyes.

First it’s the simple economic definition of a crash and a panic. The panic level is a loss of 2% or greater and the Crash standards is 10% or more. All of the markets breached the 10% metric at some point and all recovered. All have and still do stand in breach of the 2% benchmark at the present. The wiggle room part of the story is the amount of time in which the decline occurs. Two months is usually a bit too much time for the falls to be characterized officially. Forget officially. These markets have seen panic level trading and breached, albeit recovered form, crash levels in the past month.

Second is the history behind the last 2 months. The world’s stock markets have been setting all time high records continuously for years now. Look at a long term chart of the S&P and you will see near continuous price advance for the last several years. The chart relates clearly that these new records are hardly fun away bulls vigorously driving up price. Rather they brush up against, nudge, and push almost by indifference the price levels to new highs. Volume is not running away as are not prices. This means that the house does not stand on firm ground, as we indeed saw over the last two months, and more importantly, the likelihood of a serious loss of faith and a mass rush for the exits does not loom far from the horizon. Fore warned is fore armed. We can profit from falls as well as rises in asset prices.

The Week Ahead

Besides the monthly NFP report out this Friday in the US, the economic calendar is light this week. While the NFP is a not to miss event for a wide variety of reasons, the world is very likely to be focused on two issues: Facebook and the increasingly shrill sounds of the Trump induced trade disputes.

There are several aspects of the Facebook case we need to be aware of but only one from which to profit. That one is the fact that the stock price is falling. At press time that fall stands 13.7% and had reached levels over 19%. As of our latest read, around 30 Attorneys General across the United States have filed suits against the firm for its disregard of privacy. Over 10 private suits have been initiated throughout the land too. Facebook CEO Zuckerberg has been summoned before Congress to testify and surely will be obliged to do so in other venues as well. IT is not going well for the firm and it is far from over. Likely the Federal Court will consolidate all of the suits and create a class action suit on behalf of all of the claimants. When viewed against the almost gravity defying rise of the stock since its IPO in May of 2012 one might conclude the current setback is really just a one off correction in lieu of the steep slope of the previous rises. We do not see it that way. Facebook has had past affairs in this arena of privacy. It has dusted itself off and marched on smartly. This however is different. For some time monopolies like Facebook have thwarted efforts to be regulated as the common carriers that they are. This affair will surely move the debate of regulation further along than it ever has for the technology monopolists.

The continued sabre rattling undertaken by the current US regime along with the harmonic resonance from the Xi regime has all the makings of a potential growth strangling trade dispute. All that is except any real action. While the Chinese have to counter his talk, there is as yet no real increase in friction, either political or financial, raising the costs of doing business for hardly any trading firm yet.