Market Commentary May 11, 2019

The Trading Daily Market Commentary features a summary of selected market segments as well as economic matters. Its content of interest is made available to all traders and investors at large

Reflecting the market responsiveness to sentiment concerning the escalating United States-China trade conflict, Wall Street showed a sharp turnaround during the session yesterday after diving sharply lower in the early trading.

Notwithstanding the robust rebound on the session, the leading indices drifted sharply lower for the week. The broader S&P 500 index dropped by 2.1%, while the DJI went down 2.2%, and technology-heavy Nasdaq 100 dived by 3%. 

Market Picture, Chart, and Graph

In the present market picture, one does not have to be a quant mathematic guru to understand that after what is forming up as the dangerous week for American stocks this year, the sentiment of the global markets is chilling off at an accelerating speed. 

That's exactly what the Nomura Holdings Inc. quant organization has observed, with the bank's Masanari Takada, a quantitative strategist posting that sentiment has pretty much worsened in primary markets throughout the world most prominently in mainland China's stock markets, where investors and traders have displayed more risk-averse ever since December on the last year. 

Adding to the adverse sentiment is the conclusion they have made lately, mainly that Commodity Trading Advisor's and many other trend-followers are more keen to dump their holdings. And therefore, are inclined to sell stocks, which by the way tells not only an interpretation of the earlier numbers; but including supply-demand dynamics amidst significant hedge funds that also echo's the market sentiment picture. 

In the American equity markets, the Japanese bank notes where contrarian activities have followed the sell-off as profit winnings on short stock positions by macro High-frequency trading's (purchasing back stocks to close out positions) and a little upward push in the equity vulnerability of equity long and short funds. This is important to note because such movement by contrarians might boost the stock markets transitionally.

But, unlike macro High-frequency's, trend-following professionals (Commodity Trading Advisors, risk-parity portfolio allocation funds) have proceeded to sell stocks, a prejudice which we believe will remain to stay until the broader S&P500 index reclaims Key Resistance 2945. Until this happens Commodity Trading Advisors will maintain their selling back into the stock market, and also the closing out of long-term positions will proceed until the S&P500 index has been pulled downwards to Key Support 2798 or even 2743 area.    

While the worldwide stock markets can stage a rebound such as in yesterday trading session as a kind of velocity correction, we might then expect another equity is curtailing towards the end of this month. What will happen next is anything but a bullish movement. We believe that the global markets bounce this upcoming week (As shown on Friday) may rightly turn out to be a to deceive an adversary.


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