December 17, 2018

‘Triumph of hope over reality’ – strategist bursts market recovery expectations

Global markets tumble after another massive US stock sell-off

“The idea that it’s all done in one sell-off is, I think, probably a triumph of hope over reality,” the analyst said, as quoted by CNBC.

The warning comes as investors are still concerned over the recent sell-off that saw another significant drop in American stocks earlier this month with indexes around the world plummeting amid fears of rising interest rates and higher inflation.

Sell-offs tend to happen in three waves, according to Watling, who refers to market analysis and history.

“You get your vicious first wave sell-off that we had with the high on January 26 in the US, then you get your typical wave two relief rally which we had last week when the SP was up 6 percent, the best weekly performance since 2011, then you tend to get a third wave to either new lows or testing the lows from the first wave of the sell-off,” the strategist told the media.

Watling stressed that prior to the first wave in late January, investors saw “two years when the market pretty much went up in a straight line and the complacency was huge.”

“There’s huge complacency. Everyone’s talking about a ‘healthy market correction’ but generally when you have proper pullbacks people are slightly fearful of the bottom – they’re not regarding it as wonderful. So, typically, that ‘third wave’ is key and I think there’s probably some more downside risk over the next few weeks,” the analyst said.

He added that while he believed equities were still in a cyclical bull market, declining liquidity was “dangerous.”

“This has been the most heavily, liquidity-fueled bull market ever. So sniffing taking it away, which was perhaps what the correction was about in January, is quite a dangerous environment,” Watling said. “I’d be very nervous, in the medium-term, about what happens when liquidity is withdrawn.”

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