Nicholas Vardy
A Solid Performance During Tumultuous Times
"Never confuse brains with a bull market" is one of my favorite adages about stock market investing. When the market is soaring, even the shoe shine boy is a genius. It is how you do when markets are struggling that truly tests your investment mettle.
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After bouncing toward the end of last week, global stocks have resumed their downward trend.
Betting against the “China Miracle”
Global stocks rebounded last week, as the MSCI Emerging Markets Index rose just over 2%. U.S. stocks also bounced with the Nasdaq rising 1.3%, and the S&P 500 edging up 0.2%. The Dow Jones Industrial Average, however, fell 0.6%. With a loss of 8.2% for the month, May was the Dow’s weakest showing since February 2009.
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At times like this, it is tough to focus on the long-term bullish case for global stocks. The MSCI Emerging Markets Index is now trading below its 200-day moving average. The market is lower than it was after the sell-off in January, and it closed yesterday at its lowest level since September.
A Defensive Bet on King Dollar
Despite Friday’s rebound, global equities still finished lower on the week. The Nasdaq dropped 5%, the NYSE composite slipped 4.3%, the S&P 500 dipped 4.2% and the Dow slid 4%. By Thursday, the major U.S markets entered into correction territory, with the major averages dropping both below levels of the May 6 "flash crash" and 10% beneath their previous highs. Global equities had reached this level earlier and the MSCI Emerging Markets Index is down more than 15% since it peaked in mid-April.
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Global stocks are trading down again today, after Germany announced a ban on short selling in its stock market. The S&P 500 briefly pierced its 200-day moving average, a crucial support level in the view of many investors. A close today below that level could trigger more selling. More ominously, the MSCI Emerging Markets Index closed under its 200-day moving average for the second time in the past month. The significance of the first time was hard to gauge, as oil followed the “flash crash” of May 6, which distorted all technical measures. But the second penetration has definitely made me more cautious.