It was just a matter of time that yesterday’s romance between the Bulls and Wall Street came to an end, giving way to the Bear era, meaning the indexes corrected more than 20% from historical highs and this has far more complex implications than at first glance it might look obvious. The most important thing now is that there is an 80% probability of a recession in the period of one year in the USA, at least that’s according to statistics from past recessions. While Mohamed El-Erian, chief economic adviser Allianz’s went further and indicated that the recession will be global, but in any case it is now evident, for the first time since the 2008 financial crisis, that central bank action is no longer the panacea for market ills.
It was very clear yesterday that investors did not giving any relevance to the ECB’s measures, while the announcement of the EDF was a short-lived optimistic response. With the indexes returning to new lows of the day and after an unusual variation, in a session in which volatility was once again the Queen while volume was the King, given the more than 18 billion trades carried out, which compares with the 12.4 billion average last month and the 7 billion that is usually the average on normal days. With falls of over -9% in all indices and with the Dow Jones almost touching the decade, registering the worst day since the black Monday of 1987, there was no possible escape for the selling pressure. The health sector demonstrated the least weakness by sliding -7.41%, while energy, financial, industrial and utilities lost more than -10%.
Today will be decisive in the sense that it can confirm a break in several technical indicators of support in the weekly bars, which if occurring would validate the scenario of continued instability for a few more weeks, I mean the worst may not yet have past.
