There was large (grade 1) equity turn in Europe and the US this due this week on Tuesday June 4th. The markets were heading lower as the day approached, making it seem as though a low point would be made at the turn. In the last 36 hours, rallies developed, meaning that a ‘swerve’ might have occurred in which the market made a high point instead. This is still a possible outcome but we are going through a period in which turns come often, which makes volatility the only certainty.
Since the short-term high made on the 4th, markets dropped quite hard into lows that were made yesterday and they have now rallied again. It is also possible that yesterday’s low was the turn and that it came two days late. We still cannot tell with any certainty which of these two alternative scenarios is the true one and a few more days must pass before we get a clear picture. We will know more if the highs of Tuesday are not exceeded on this rally as then it will look as if that high point was the turn. We would trade as if this were the true situation.
None of this changes our medium and long-term bearish view of US and European equities. We will continue to try and identify the appropriate moments to short-sell for each successive drop in the future and will warn of volatility when we see it coming.
For trading purposes, some readers may have covered shorts on the 3rd or 4th, in anticipation of a low point at the turn. If so, we now advise short-selling again on this rally, with protective stops above the highs of the 4th June.