Arkent Update-In The Eye of The Storm - Tin Hats On!

The above chart is of Volatility on the US Equity Markets.It has so far behaved as per our expectations as this pause between phase one and phase two is almost complete

Remember that stock markets are the mood barometer of a nations collective psychology and volatility is a measure of collective panic.

Since February we have seen  the collective shock response to the impact of the Wuhan virus, in which the  stock markets fell. We have then seen a correction of the order of 50% by the time we see that last high corrective high around 2800 in the S and P in the next few days. Whilst that bounce has been  much less than 38% in the weak markets like the Italy 40.

This correction is associated with a psychology of calm and back to normal with the buying of dips!. However it is a trap and the best analogy is that it is just like being in the eye of the storm, as the collective psychology deceives itself that the storm has abated.Until the  other side of the storm hits with enormous destructive power when for many it will be too late.For both risk takers and C suite executives this calm should have been a time to prepare for the biggest test of all. For those that have not time is short and action should be taken now.

We have described the first shock as Phase one of our Arkent Scenario Road Map and we are now in phase two. So be prepared as this is the most destructive of all of the three phases.To summarise, we have completed Phase one we are now in  Phase two as follows below.

  1. The Equity markets like the S&P 500 have one more marginal high to 2800. The weaker markets could well fail and not even make new highs. We will be looking to reset all our shorts in the next few days.Note that the China A 50 is ready to drop- clarifying that although China is getting back to work it stock market has been hard it.
  2. US Bonds are now ready to rally again to meet our -0.3% target in the ten years. As this rally unfolds we will be watching for signs of the Chinese selling their bond holdings.
  3. Oil will fall along with all other industrial commodities
  4. Gold and silver are set to rally through this period.Note silver will become a financial metal again as there will not be enough gold to go round the central banks!
  5. The  Dollar has started to accelerate to the downside against the Yen, Sterling,Swiss Dollar Index and Yuan. But continues to strengthen against EM currencies.

I must emphasise once more, that his phase two is the most destructive of all phases. At the same time as a risk taker it will offer the greatest chance of making very large risk adjusted returns and low volatility entry points in the here and now, so load up postilions early as we have recommended and stay Frosty as that storm wall will soon be upon us.

Using 1929 as the best analogy Phase one looked like this.

 

Using 1929 as the best analogy Phase two went on to  looked like this two years later (I expect the time frame to be compressed by at least a factor of 2 if not 3.