From the highs 3 weeks ago, we think that the major indices will drop 15 percent, then it is time to buy. Tech names like Facebook and Google will suffer, some already down 20 to 30 percent or more, are worth looking at – implementation on reversals.
Late in the stages of a long-term bull market, all external factors that potentially could impact the US equity market are amplified. The recent US rate hikes and trajectory are the core drivers but the China trade tensions, combined with the EM or emerging market disruption are all coming into focus and are impacting the Dow Jones, S&P 500 and of course Nasdaq – some tech names are down 20 to 35 percent and are still dropping. Have a look at our Facebook audiovisual packages posted 3 weeks ago.
We see this October sell-off continuing with the targets on the downside for Nasdaq at 15 to 17 percent for the index and as mentioned, we are looking to buy dips in “implementation on reversal” as the speed at which the sell-off is and will remain fast. An S&P 500, Dow and for Nasdaq somewhat ore sell-off is healthy in an economy that has 1 to 2 years of strength remaining.
Overnight in Tokyo, the Nikkei 225 fell 3.89% while Shanghai dropped 5.22% – we at Classiarius feel that the trade war will only intensify and that the Chinese economy will suffer slower growth and some setbacks before the US and China reach a deal.
In the US yesterday, when markets melted down, bonds first sold off, with some severe impact in the long-end, only to see the US 10-year note firm up a bit. Note that the US 10-year note was trading at a yield of 3.05% and within 3 days was higher (inverse price and yield) by almost 20 bps, to 3.23%. Higher yields do not concern us but speed does. This was a shockingly fast move.
We see one to two more weeks of heavy markets and as such, are waiting for another dip to buy.