What we can & can’t tell about the state of global markets, US employment, & how EU’s failed banking deal is already doing damage
The following is a partial summary of the conclusions from the fxempire.com  fxempire.com ’ meeting in which we cover the key lessons learned for the coming week and beyond.
Summary
–Technical & Fundamental Drivers In Near Term Equilibrium & What’s Likely Sources Of New Trends
–Lessons From The US: State Of US Markets, Employment, & What The Fed Doesn’t Mention About US Jobs
–State Of The Bull Market: Warning On Using Historical Indicators To Time Markets & Examples of Their Use & Misuse
–Lessons From Europe: How The Failed Bank Union Deal Already Coming Back To Haunt EU
Global Markets: Waiting For The Next Big Thing
Both our technical and fundamental analysis of global market drivers shows that bullish and bearish considerations remain in equilibrium.
Technical Outlook: Virtually every global risk asset market we see, be it a major global stock index or currency, remains within a 12 week trading range. Longer term uptrends are intact but can’t get past nearby long term resistance, be it 1890 on the S&P 500, or 1.39 for the EURUSD
Fundamental Outlook: Similarly, each week’s top tier economic data continues to present mixed results that do nothing to change the prevailing consensus about the various big economies that drive global growth. For example:
–In the US, slow recovery.
–In the EU, a patchwork ranging from slow recovery to stagnation
–In China, slowing growth
It’s a “two steps forward 1 step back†theme.
See our posts on the coming week’s market movers and the coming week’s market movers for details.
The short version: Without a material, sustained bullish or bearish change in data from the leading economies, markets are likely to range trade until they get at least one of the following:
- A policy shift from the Fed or ECB
- A sudden geopolitical threat like a real escalation in the exchange of economic sanctions between Russia and the West
- A new bout of EU crisis or other contagion threat
Next, we look at specific lessons learned for the coming week and beyond.
US
Latest On The State Of The Market
Here’s a summary of what we’ve read over the past week
Reasons To Be Bullish: Valuations Can Stay High Longer Than The Current Bull Market
Even if traditional measures say stocks are overvalued, or if stocks have had a huge run higher, that doesn’t mean they’ll go down anytime soon.
Per a recent research note from Gluskin Sheff’s David Rosenberg, bear markets don’t happen unless we get one or both of the following: Â
- the Fed over-tightens
- the economy heads into recession
Rosenberg offered this chart showing 12-month returns in the S&P 500 since 1969, showing that market downturns usually come due to recessions (shaded area).
The Coming Week’s Must-Know Lessons: State Of Markets, US Jobs, Ukraine, Etc.
(via Business Insider research note)
01 May. 04 18.41
Note also that that 30%-plus rallies over a given 12-months like that seen in 2013, are not uncommon.
The Key To Using Historical Market Timing Indicators: Check Historical Context
The below are two recent bearish indicators. However their bigger lesson is that whenever you see charts of alleged historic stock market crash indicators you (really) need to check the fundamental/historical context.
The indicators themselves are rarely the actual cause of a pullback. Rather, their value is that they provide signal that you may be missing a more logical reason for a coming pullback, and that you need to do some fast investigation to uncover what’s behind these signals and whether it’s a legitimate threat.
Example 1: Stock Market Margin Debt Reversing Off Record Peak
Wolf Richter points out that the recent reversal of the multi-year all time high in margin debt that began in August 2012, peaked in February 2014, and reversed by $15 bln in March, is a particularly ominous sign. The last 2 times it happened, markets crashed (simultaneously in 2000, after a few months in 2007).
