TGIF

Thank God It's Friday....The global equity markets will be counting down the minutes to the closing bell in the US this evening after a long hard week of massive declines. The big decision that we had all been waiting for come and scared the markets. The idea that the FED may act on the idea of 'Tapering' the existing level of QE was the catalyst that top callers have been looking for.

We saw the drastic effects on the global markets especially in the US, again highlighting the markets dependence on central bank intervention. It is amazing to see how dependent stocks have become on the FED and in its purest form it is scary. We have seen billions wiped off the global equity market over the idea that the FED may act to reduce its current easing due to the fact that the US economy is showing signs of improvement, one may ask the question, 'If the economy is improving is this not a good thing for stocks?' and although it should be I will list a few reasons why this is not the case;

1. The recent rally that we have seen from January 2013 has been based on the level of central bank intervention rather than economic fundamentals. This is not only the case in the US, Japan has experienced drastic stock market growth based on the BOJ 75 Trillion monthly injection.
2. The economic fundamentals have not shown a correlation to the extreme easing measures in place and  I don't think that anything has changed since pre easing measures have been introduced. 
3. Markets are focused on sentiment, and sometimes irrational and illogical. In an ideal world good news should be good news and bad news should be bad news, however with the level of global bank intervention we have created a world where the opposite is in fact the case.
4. It should be a good sign for the US economy that the FED are considering reducing there level of easing to support the economy. From their research they feel that the US economy is moving in a  direction that it may be able to stand on its own to feet.
5. We need to experience a shift from CB intervention, we need to experience a rotation from intervention to stability a situation where economies and stocks can be judged on their own performance and innovation capabilities rather than how much the FED is willing to print.

We have come a long way in a short period of time and we are beginning to see some money come off the table as institutional investors lock in some profit as they fear what the next few weeks might bring. It is important to note that markets can fall a lot quicker than they can climb. The next dilemma on the table is where to invest your money next? Where is the safe-haven? Usually investors and hedge firms would run to defensive asset classes such and Gold/Silver/Bonds but that play is no longer available.

There exists no safe-haven, we have seen the drastic fall in Gold over the last couple of months and more importantly over the last couple of days with all major technical levels breached. The bond market is in the brink of collapse and neither of these plays will be supported by the FED's plan of tapering QE. The stronger  USD will make Gold relatively more expensive to global investors, and there is a solid argument to support the commodity/ emerging economy bull cycle coming to an end.

As a trader/ investor this is a time that you need to sit down and analyse your portfolio. If you have been involved in the recent equity bull cycle over the last 5 months then I do believe it may be a good opportunity to cash in on gains and wait for another buying opportunity. It is my personal belief that equity markets will recover in the short term as investors try and get there head around the fact that 'Tapering' is a positive sign for the US economy in the long run.

Happy Trading

@lowkeycapital