The Credit Markets Have Stalled

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Credit markets often move before the equity markets, and this can offer helpful information about the near-term path of equity prices. In general, I like to see credit confirming what the equity markets seem to be saying. When credit stalls, like it is now, I take notice. Investment grade spreads recovered about 30bps between January […]

Putting this Rally Into Historical Context

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Several weeks ago we did some research to find out what a typical rally looks like after a big waterfall-like decline takes place. The takeaway was that the rallies after those waterfall declines have lasted anywhere from 1 to 74 days and have retraced 20-90+% of the initial decline. That’s quite a wide range in […]

Currency Markets & Knightian Uncertainty

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Knightian uncertainty is named after University of Chicago economist Frank Knight (1885–1972), who distinguished risk and uncertainty in his work Risk, Uncertainty, and Profit: “Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated…. The essential fact is that ‘risk’ means in some cases a quantity susceptible of measurement, while at […]

There is Statistical Merit to this Oversold Condition in Stocks as Buying Opportunity

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The oversold condition in stocks that has developed over the last several weeks is more than trivial. I highlighted on Christmas Eve the baker’s dozen reasons why equity markets could tactically rally from that point, showing extremes in a variety of indicators. Extremes of the nature witnessed are typically indicative of good entry points, and […]

Santa’s Gift to Investors: Global Oversold Conditions Present Buying Opportunity

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The S&P 500 experienced a waterfall decline in December, something rarely seen. Measuring the decline using a 30-day Wilder Relative Strength Index, it is clear the extremes recently experienced. On Christmas Eve, the S&P 500 punctured 30% on the RSI, something that has only happened several times in since 1990. Similar extreme readings were seen […]