David Fuller's view Many commentators, including ourselves, have pointed out that stock markets were due for a reaction following their impressive start to the year. You may have seen Eoin's comprehensive review of the Autonomies a week ago, most of which had become overextended relative to their trend mean approximated by a 200-day moving average.


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I referred to this last Thursday in reiterating the outlook for a temporary corrective phase:

Meanwhile, leading equities and indices remain overextended and due for some mean reversion towards their MAs, as Eoin pointed out in his review of Autonomies yesterday. Some weaker stock markets have fallen back more quickly recently. It is a mixed picture but our overall impression is that a temporary corrective phase is more likely than not, before accommodative monetary policy extends the cyclical bull market in shares.

Clearly, more stock markets have subsequently lost upside momentum and evidence of selling pressure will remind investors of earlier concerns. Fortunately, these may not include crude oil, at least not yet, especially if Brent can follow the downside lead from WTI and if both ease further on the logical conclusion that the risk of an imminent military strike against Iran has been exaggerated.


Europe and specifically Spain is now my top contender in terms of renewed concerns and Prime Minister Mariano Rajoy's comments are not helping. Spanish 10-year bond yields have pushed higher recently and the IBEX Index remains a serial underperformer in retesting last year's lows. Both Spain and the ECB will have to address these concerns if contagion is to be avoided. Meanwhile, the Euro STOXX Bank Index has fallen steadily from its range highs. It should find some support from the lower boundary of this pattern but a rebound is required to quell concerns.


In Asia, China has been closed since 30 March but remains another serial underperformer. It is cheap for a growth economy but the gradual process of political handover is adding to uncertainty. I expect the Shanghai A-Shares to find support above the December/January lows but this influential market will not be a positive influence until it starts showing relative strength and forms an uptrend. The ASEAN leaders: Indonesia, Malaysia, Philippines and Thailand have been outstanding but show some loss of upside momentum. More importantly, they are likely to be upside leaders once again following this corrective phase.

Wall Street has exerted a powerfully bullish leash effect this year but the S&P 500 looks overextended and is no longer maintaining upward breaks. The Nasdaq 100 has been phenomenal but shows some loss of momentum. Given a normal reaction and consolidation, which is likely, I would expect it to lead on the upside once again when the cyclical bull market eventually resumes. Meanwhile, the key to the Nasdaq is mighty Apple for which the next close under $590 would confirm a loss of momentum.

In conclusion, while April is often a month of seasonal strength, it is followed by several months of seasonal weakness. There are exceptions, inevitably, but we should not be surprised if stock markets are in a mostly ranging corrective phase for a number of weeks and possibly months. Thereafter, I expect the cyclical bull market to resume.