What To Do For The Rest Of 2012?
Cam Hui | Aug 06, 2012 03:56AM ET
What should we make of this volatile stock market? Just as it seems that the market starts to move in one direction, it reverses course and violently punishes the traders to try to catch the breakouts or breakdowns.
I present my base case scenario below, otherwise known as my wild-eyed guess for the remainder of 2012.
Bear case: Market internals scream "cyclical slowdown"
A review of the relative performance of the US equity sectors scream "cyclical slowdown". Consider this relative performance chart of the Morgan Stanley Cyclical Index (CYC) against the market. Cyclical stocks have been in a relative downtrend since February. The message of the market from relative underperformance of the cyclical sector says "cyclical downturn".
The relative performance of Consumer Discretionary stocks also tell the same story. This sector had been the leaders for quite some time, but this sector is now rolling over on a relative basis, which is not a good sign for the risk-on, high beta trade.
Technology, which I characterize as a growth-cyclical sector, is not providing any leadership either. The relative performance of the equal-weighted NASDAQ 100, which takes out the effects of heavyweight and market darlings such as Apple, has been rolling over on a relative basis.
Bull case: Sentiment models screaming "buy"
While the cyclical indicators appear to be pointing south, long-term sentiment models are screaming "buy". The Citi Panic-Euphoria Indicator (via Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
Get The News You Want
None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.