Why Global Investors Should Pay Attention to “Non-Confirmations”
“Markets almost always splinter when big changes in social mood are afoot”
by Bob Stokes
Updated: March 23, 2020
When a trend is strong, related markets tend to move in unison.
However, when a trend is near exhaustion -- bullish or bearish trend, this applies to both conditions -- "non-confirmations" often occur. A non-confirmation occurs when one market makes a new high (or low), but a related market does not.
As cases in point, our November Global Market Perspective discussed the details of the non-confirmations in Europe as it showed two charts. Here's the first:
The Euro Stoxx 50, the DAX and the FTSE 100 (top three graphs) have so far failed to confirm new multi-year highs in the CAC 40 and the Swiss Market Index (bottom two graphs).
Here's the second chart with continued commentary:
The chart depicts [a] critical loss of juice in Britain's higher-beta indexes. Notice that while the FTSE 100 is off 6% since its May 2018 high, the Small-Cap index and the AIM 100 are down 9% and 23%, respectively. These non-confirmations are important, because markets almost always splinter when big changes in social mood are afoot... It's only a matter of time before the broad indexes abandon the bull-market party.
As we all know, abandon it they did -- big-time!
And, it's notable that our global analysts' forecast for the end of Europe's "bull-market party" occurred about two months before coronavirus flared up in China -- and six weeks before the outbreak hit Europe.
So, clearly, our bearish European forecast was not based on the coronavirus.
We base our financial forecasts on technical indicators and the Elliott wave model, not the news.
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If EWI’s analysis is correct, the next major global monetary event will be deflation.
Deflation is rare.
The 2007-2009 global financial crisis was a brush with deflation. The last “all-out” deflation was in the early 1930s. No doubt – you know what happened then. It was a financially scary time – to say the least.
Get insights into why you should get ready now for another deflationary episode.
The global stock market downturn is a lesson in how quickly financial conditions can change.
Now – prepare for what’s likely next.
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