Did markets just hit a key wall and are ready for a much overdue turn? That’s the question we want to explore from a technical perspective following the sudden reversal action on Thursday and Friday as action at a key technical juncture may suggest a shift in character.
Let me make perhaps a bit of a controversial statement: It’s not the coronavirus that’s the biggest threat to the global economy, it’s the potential of a massive market selloff that would shake confidence at a critical juncture in the business cycle while the reflation trade everybody was positioning for looks increasingly fragile.
Yes, the virus, hopefully ultimately temporary, clearly has a short term effect, but rather the broader risk is the excess created by ultra-loose monetary policies that has pushed investors recklessly into asset prices at high valuations while leaving central bankers short of ammunition to deal with a real crisis. There was no real crisis last year, a slowdown yes, but central bankers weren’t even willing to risk that, instead they went all in on the slowdown. It is this lack of backbone and co-dependency on markets that has left the world with less stimulus options for when they may be really needed. Reckless.
I repeat what I’ve said before: I hope the coronavirus is not the trigger that gets associated with an eventual end to this bull market. For one, it’s the worst reason as people are dying from it, and second, it would be paraded as an excuse for the proponents of cheap money and debt spending to not learn their lesson again. They’ll just blame the virus and not the monetary monstrosity that has been created and then proceed to do it all over again, or even more so than before.
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