Market Sell-Off Or Start of a Rally?

22 Jun

The commodity markets suffered one of the worse days for market sell-offs yesterday – is this a clear indication of a global economic contraction? We all know that the fundamentals have been deteriorating for some time but have the eternal bulls now thrown in the towel? In other words, perception is negative.

15 international banks have been downgraded including Barclays, Bank of America, Goldman Sacks, Citigroup, J P Morgan, Morgan Stanley, Deuteche Bank and Credit Suisse, to name just a few. This will drive sentiment and fear further undermining confidence and the hopes for global prosperity.

This has led to a bit of consolidation and profit taking following the recent declines and relief rally (post the Greek election). It could be something far more dire or reality finally entering the markets. Well, the volatility keeps you questioning.

Fundamentals haven’t changed but investor sentiment certainly has – in the last month we have seen the VIX index drop from near 27 to under 18 and now back above 20. This shows sentiment is fragile and is lurching from one extreme to the other.

So are we looking at global declines and the end of the world as we know it? I don’t think so – right now sentiment is negative and for those willing to accept the volatility this could be profitable. Care as always is needed as some markets will benefit through this difficult times and some will “crash and burn”.

For those in the commodity space – you are in for a very rough ride and there is currently a higher likelihood of loss rather than gain. What ever sector/manager/strategy you take – take care as this is a very opportune but troublesome markets.

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