Markets can't get out of woods, what next?

Markets are usually two steps ahead of reality. You know, they reacted with an incredible recovery and a year of rocket-bull market after the crash of Covid-19 contagion, and they totally anticipated the recovery of “real economy”, also driven by an unprecedented flow of easy money, provided by Fed.

Since they are two steps ahead, we think that a correction of financial markets could ironically come when very good news about vaccine campaigns arrive, because markets (especially tech stocks) have already priced the good recovery that hasn’t been, and with real good news coming, maybe all the easings on money flow given by Fed could get to an inevitable plateau.
When reality is “as good as it can”, markets do not see room for further growth, and sometimes collapse, if overpriced.

Are we at that point now?

After a good start of 2021, since mid Feb we had a small correction (Nasdaq Comp are -8% since the top of 02/12) , but now markets - especially techs, which are supposed to lead bull markets - seem incapable to find new strength: every spike up is quickly sold, any good news from politics and financial institutions does not comfort the investors’ sentiment.

On the contrary, every small piece of bad news, as fear of inflation or rising interest rates, drags down indexes.

As you know, my opinion is that we shall finish this 2021 at a higher level of indexes.

But I could be wrong and – more important – the HST model is not bound to my personal opinion.
So, what if markets have topped already and will continue a bear period, of which the last month was just the start? How will the HST model react?

• Well, since the Tech Indicator 1 is negative, the Aggressive Long position is and will be out of the table.
  We are in ML position. How long shall we stay there, in case of a deeper crash?
• The Tech Indicator 2 is still quite strong, but the Fundamental Indicator is hanging around zero (now barely positive) and this indicator is updated every week.
  So, apart from the path of indexes, if economy does not show a solid improvement, HST will turn to Cash position quite soon.

As a bottom line, I would say that a deeper drop of indexes (say a further -10% / -15%), with HST kicking us to Cash, could be a good opportunity to re-enter in the markets at lower prices, and benefit more the bull market that I still see for 2021.

Hari Seldon Trader

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