Friday, November 22, 2013

Sellers in Europe

Despite 20 straight weeks of inflows into European equities, they are lagging the world indices.  Even the ECB rate cut and negative interest rate jawboning didn't provide a lift.  Europe has no growth, and no QE, so there is no endless flow of money to buy up all risk assets in euros.  So you are getting this lagging performance even with relative undervaluation.

It has been a while since we've gotten a true scare in this market.  We are vulnerable to a sharp one day move lower because of the excessive complacency.  Yesterday saw some heavy call activity in the equity and index options.  Even though buy the dip will still work, it will be more like 75% probability of it working rather than 90%.  The percentages will keep going down for that strategy as the market gets more saturated with weak hands.

This 1800 level is significant, and with so many already on board, we won't be able to just blast through to new highs so easily anymore.


Anonymous said...

Hi I was reading the historical charts. Found that equity market correction typically occurs at the middle of the month. Are there any plausible fundamental reasons? Say, expiration of equity derivatives, economic data releases, etc? Thanks.

Market Owl said...

Expiration of equity options is one of the most important factors for weakness in the middle of the month. Also, you usually have equity strength at the beginning of the month, which accounts for much of the monthly equity gains.