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.
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If EWI’s analysis is correct, the next major global monetary event will be deflation.
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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.
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