I’ve been writing bearish notes on the U.K. market for some time and now it is definitely in a correction.
This is a reasonable case to make.
A key thing to remember about this fall is it is not about Brexit. It is about a stock market correction in Europe and the U.S., more exactly a correction or U.S. crash. FTSE falls are just spill over from the U.S. fall.
I have not sold, though I feel a little sad about that as I would be feeling smug if I had bailed out a few days ago when I felt a strong urge to do so.
This is what I am thinking: I believe there is support for the markets from central banks that, while they are tightening, do not want a crash to derail their plans.
They have, and more specifically the U.S. Fed have, the tools and plan to step in and hold back any panic by simply adjusting reverse-QE to QE. The lever is good enough to hold the market in a long-term range until they have got their balance sheet in order.
Reverse-QE is now as tight as it gets and has been accelerating, causing a lot of emerging markets distress, and this correction is likely to be simply the impact of that tightening. It is February 2018 all over again.
In this model you can try to time this sideways market or simply sit it out on good shares to buy the dip and lighten up at the peak of the cycle without trying to get to clever.
This roller coaster is not going to be pleasant but trying to ride it by trading could be very costly.
In effect, this model harks back to post dotcom crash and a range bound DOW.
Clearly things could go wrong, but nonetheless this market was regulated for most of the period by liquidity injections designed to hold the market in place while the economy caught up.
This is the environment I believe we are in now, so I have decided to ride it out.