Wednesday, March 08, 2006

World Markets Top?

I am not an expert on macro views as far as the world's markets are concerned, but poring over my charts tonight I saw something that stood out like a sore thumb:

Indices around the world don't look so good. The indices I am talking about are represented by listed funds (ETF's) on Amex and Nyse. These funds concern the new "leading emerging" economies - the spotlight of economic developments and, if I may say, "precipitous" hype:
  • India: IFN
  • Russia: TRF
  • China: FXI
  • Brazil: BZF
  • Turkey: TKF
  • Japan: ITF
The notable thing about all these tradeable funds is that not only they just appear to be "toppy", but that most of them (with exeption of Japan) present very prominent tops followed by two down days with an expanded range and an unusually high volume (in some cases volume was almost triple the 10 day SMA). To me, this looks like an ominous combination, even though I don't see much of a catalyst behind it.

But then again, most events never have catalysts - until after they occur.

What to make of it? Well, as I mentioned, I am not an expert on foreign markets but this does look like some sort of a top with possibly worse things to come. Some of these tops show strong sell signals on a longer term scale, and as I look at them I get a familiar feeling of "have-to-get-short-now-don't-care-how", which usually resulted in profts. Having said that, please be careful to not read this as a deliberate forecast of some doom and gloom scenario - I am merely pointing out something that may "click" when you witness a seemingly unrelated situation in the US markets. Given the proliferation of foreign influence on our market indices, the globe is really worth paying attention to (it always has been, but now it's simply a must)

The way I am advising our fund to game this is to continue the mode of selling rallies in the broad indices. If anything, the above gives me a stronger (or more confident) bearish bias, which will be parlayed into our trading.

It's odd. I am not a forecaster and I (mostly) don't believe in it. Most of the things we trade seem to show a trend of anywhere between "blah" and "bad", and if I had to get on CNBC and try to make a "prediction" I'd have absolutely nothing good to say, except that the VIX will probably be a lot higher in the coming months.

All of this may well amount to nothing, but my gut tells me it does. So, I advise to keep this in mind, trade accordingly and hope that the bottom does not fall out.

Bad things happen when it does.

Cheers,
/Dmitry

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