Select Page

2018 surprised most investors and commentators and marked the peak of the longest equity bull market in history.

The 2009 – 2018 secular bull market started from very depressed equity valuations and was fueled by truly exceptional liquidity injections as the main Central Banks of the world focused on averting a structural deflation – depression and resorted to massive quantitative easing.

Keeping interest rates at zero – or even in negative territory such as in Switzerland – was not enough to prevent deflation and Central Banks in America, Japan and later Europe used their balance sheet to buy massive quantities of long dated bonds, forcing long term interest rates to zero or even in negative territory.

Bond markets rose in an uninterrupted way from 2008 to 2016 and equity markets powered higher, fueled by massive liquidity injections, experimenting one of the largest phenomenon of valuation expansion ever.

The 2009 – 2018 bull market as very much a US affair.

Stocks rose there almost every year apart from 2011 and the market capitalization of the US stock market trebbled over the period. The entire bull market was powered by the technology sector as the 2010s where the decade where tech winner-take-all business models created giants dominating their industry and culminated with companies passing the US$ 1 Trillion market capitalization, the size of the Indonesian economy and its 260 million people.

We like too show this chart courtesy of Heinz Isler and Nortman Trader as it plots very nicely the entire 2009-2018 bull market with the exceptional monetary policies implemented since 2008.

European stocks fared less well and never managed to surpass the highs recorded in 2000 and in 1990.

Japan started its bull market in 2012 and rose sharply since then while emerging markets, and Asian emerging markets in particular, made it to new highs but with extreme volatility.

At some point the liquidity party had to end and it happened in 2018

As we predicted at the beginning of the year, inflation was bound to come back into the system, leading to a normalization of monetary policies, higher interest rates, higher bond yields and an unwinding of bond holdings on the central banks balance sheets.

Tighter liquidity meant more difficulties in justifying elevated equity valuations and even if massive corporate buybacks and Donald Trumps’ counter cynical tax cuts delivered a shot in the arm for corporate earnings, the uptrend had to end.

Tighter liquidity took its toll on global and emerging markets as early as January 26th 2018 while it took until the 20th September 2018 and another bout of vertical acceleration in technology stocks to put an end to the 2009- 2018 secular bull market in US equities.

Most asset classes fell in 2018, equities, commodities, bonds and credit. Only real estate did better than cash and it really took until the year-end for precious metals to show some strength.

Oil had a roller coater year, rising 30 % from January to September, but ultimately ending the year down 20 % after a complete rout following the unwinding of massive speculative long positions.


We like to show this chart courtesy of Heinz Isler and Nortman trading as int marks very nicely 

We have entered a bear market in global equities

We probably saw the first leg of that global bear market unfolding in the 4th quarter of 2018 and Donald Trump’s abrasive management of America and the rest of the World induced additional uncertainty and felling of panic.

The last three weeks of December saw an almost irrational move down with the SP500 down 16 % in three weeks, something that had never occurred since 1931.

Liquidations were massive and intra-day volatility was amplified by Hi-frequency trading, indicating that the first bear leg of the bear market was ending through capitulation and extremes of negative sentiment.

A massive reversal took place in the first week of January 2019, and we are probably staring a multi-week or even multi-month bear market rally, supported by strong economic numbers, strong corporate results and an easing of trade tensions.

Sharply lower oil prices will keep a lid on inflation, keeping bond yields from rising in the first six months of the year, the FED will be more data-dependent and willing to keep rates stable while China will resort to significant easing to keep its economy going.

As was the case in the bull market, the situations will be different form one equity market to another in the bear market, with America going through a full-blown bear market while Japan, Europe, Emerging markets and China going through different cycles.

One thing is clear from looking at these charts and that is that Asia is disconnecting itself from the Western markets. During the panicky rout of December, many Asian markets did not fall much and are showing clear signs of wanting to go higher.

Stable interest rates and a lower US dollar may herald a period of significant outperformance for Asian equities

MXWO – MSCI World Index

The Monthly Chart shows clearly the double top and lower high marking the end of the secular bull market in 2018 but the 4th quarter correction stopped short of breaking the secular uptrend or even the moving averages for now.  

The SELL signal of the MACDs is clear and indicates more downside in the long run.

The weekly chart shows the clear reversal in the first week of January 2019 from extremes of overextension on the downside. The next unplug should be limited to a target of 2000 – 2090 and it may take several weeks to get there.

MXEF – MSCI Emerging Markets Index

The correction in Emerging markets has been significant and the index is now bouncing from an important accumulation zone, the two moving averages and the downtrend of the long term triangle that constituted the main resistance previously. 

The last time this configuration happened was in 2004 juts before a massive rally unfolded in Emerging Markets.

The weekly chart shows a positive configuration for the short termwith a clear exhaustion of the selling pressure, a double bottom and a higher low while the MACDs are confirming a BUY signal.

MXAP – MSCI Asia Pacific Index

Asia lost 23 % of its value since January 2018 with a clear vertical acceleration downwards in December, The index is bouncing from its moving averages and is trading at the cheapest valuation seen in the past 10 years.

The weekly chart shows a clear reversal hanging hammer in the last week of 2018 from extremely oversold levels. The next leg up should see this index reach 165, a 13 % appreciation from current levels at the minimum.


USA – Dow Jones Industrial Index

The technical picture of the US equity markets is very different from the one of the other world markets. This long term Monthly chart says it all.

The 2009 -2018 Bull market has clearly ended after a massive vertical acceleration in 2017 and a double top in 2018. US equities are extremely overextended and the MACDs have confirmed a SELL signal that points to a reversion to the mean. 

The Dow Jones Industrial Index is still very very far form its own moving averages and the downside remains important. 

The Weekly chart shows an important reversal at the end of December from oversold levels, but the upside of the rebound will be limited to 24’000 – 25’000 at best. The close below the medium term moving average is a negative sign and we would not try to trade this coming rebound in the US.

USA – SP500 Index

The long term chart shows the end of the secular bull market with a failed attempt a new highs and a 20 % correction after that. The Index is still highly overbought and the MACDs have confirmed a SELL signal.

The beats case scenario is a bear market with a 38 % retracing of the entire bull phase and the worst – and the most likely in our view – is a 61.8 % retracing to the very long term moving average, another 40 % downside form current levels.

The Weekly chart shows a clear reversal pattern from extremely oversold levels with a target of 2600 – 2650 in the next bull phase.

USA – NASDAQ Composite Index

The sevenfold rally in the Nasdaq clearly ended in September 2018 and the bear market has just begun. A clear SELL signal has been confirmed on the MACDs and the downside remains considerable.

The Weekly chart show a reversal in December and the beginning of January but any attempt to go higher will be met by selling pressure.

Canada – TSX Index

Canadian stocks are not as negative as their US counterparts and are holding above their long term uptrend for now. They are also much cheaper than their US counterparts historically.

Mexico – MEXBOL Index

Mexican stocks have definitely rolled over and should be avoided until a clear bottomming out process has taken place. The coming rebound will probably not exceed 46’000

Brazil – IBOV Index

The one and only equity market that ended 2018 in positive thanks to the election of Right wing Bolsanaro as President. Brazilian equities are nevertheless extremely overbought and must confirm their new high to power ahead.


Europe – EUROSTOXX 50 Index

European stocks lost 14 % in 2018 with a sharp sell-off in December making them one of the few equity indexes to record a negative performance over 5 years. The index rebounded on the crucial 3’000 level representing the long term uptrend, the long term consolidation triangle and the moving averages.

Germany – DAX 30 Index

German shares lost 18.26 % in 2018, of which -13.78 % in the last quarter alone, making them one of the worst equity markets in the world. The uptrend is clearly broken and the monthly close below the short term moving average indicates more weakness at later stage.

Last week’s strong reversal from an extremely oversold position and an important accumulation zone at 10’000 points to a rebound towards 12’000 in the short term.

Switzerland – SMI Index

Swiss equities lost 10.3 % in 2018, outperforming most European equity markets. The sharp break below 9’500 will be reversed quickly but the long term uptrend has been tested without being truly broken. 

Swiss equities have been in a massive rising triangle since 2007 and a break above the upper boundary will send Swiss equities flying.

UK – FT 100 Index

the FT 100 lost -12.48 % in 2018, its worst year since 2008. It is nevertheless very much in a well-established uptrend. In December 2018, it re-tested the upper boundary of the long term triangle dating back to 2000 that had been successfully breached in 2016. A successful outcome of BREXIT could send UK shares flying.

France – CAC 40 Index

French shares lost -10.95 % in 2018 and are still very much above the long term uptrend but they closed December back into the long term triangle dating back to 2000 that was successfully breached in 2016. French equities are the cheapest they have been in 7 years and there is little on the horizon that would justify further significant downside. A test of 4’300 cannot be excluded though.

Spain – IBEX 35 Index

Spanish shares lost 15 % of their value in 2018 and 22 % since their 2017 peak. They are testing their long term uptrend close to a significant support at 8’000. The next rebound should send them towards 9’800.

Italy – MIB 30 Index

Italian shares are trading on their long term uptrend after having lost -16 % in 2018. the rebound should be significant and take Italian shares back to test the 24’200 upper boundary in the next move up, an almost 30 % rise from current levels. At 9x earnings and 8 % discount to book value, Italian shares are amongst the cheapest in the European universe.


Japan – Nikkei 225

The Nikkei 225 lost -12 % in 2018 and -17 % in the fourth quarter alone. Nevertheless, the Nikkei is holding above its long term uptrend and the all-important 20’000 support level. Has the second leg of its secular bull market ended or is this a mid-leg correction ? A SELL signal has been recorded at the MACDs, but a quick rebound could negate the negative scenario

Japan – TOPIX Index

The capitalization-weighted Topix index lost -17.80 % in 2018, with almost all of it in the fourth quarter. There again the Japanese Index is holding above it long term uptrend, providing a great BUYING opportunity at current levels, particularly if, as we expect, the Japanese Yen starts depreciating again.

Shorter term, the index should rebound towards 1700, a 14 % appreciation form current levels.

China – CSI 300 Index

China’s most watched index lost -25.3 % in 2018 making it the worst performing equity market. The index is rebounding form the all-important 3’000 level and Friday’s decision of the PBOC to reduce Bank’s Reserve Requirements ratios by 1 % should provide additional stimulus for the rebound.

China – Shanghai Composite Index

The Shanghai Composite Index lost 24.6 % in 2018 and is now trading on a major support consisting of its log term uptrend and its long term moving average.

The coming rebound should take the SHCOMP index to 3’000, a 20 % appreciation from current levels.

Hong Kong – Hang Seng Index

Hong Kong stocks lost -13.6 % in 2018 and seem to have found a floor at current levels. December close was higher than October’s close and the downtrend has been broken. The MACDs have delivered a clear BUY signal.

Taiwan – TWSE Index

Taiwanese shares lost -8,61 % in 2018, falling sharply in August and consolidating significantly all over the fourth quarter, at or just under a massive support level at 10’000. Their inability to fall further during the December global rout its a good sign .

Indonesia – JCI Index

Indonesia is doing extremely well losing only 2.5 % in 2018 and having made an extremely solid base from which it is rebounding. Is Indonesia leading the pack ?

India – SENSEX Index

India ended 2018 up + 5.91 % recording a new high even if the yearly trading was extremely choppy. Indian stocks are expensive but growth is there and the global uptrend for Indian equities is in place.

However, the long term chart paints a different story and Indian equities are both extremely overextended AND recording a significant Long term SELL signal.

Singapore – STI Index

Singapore equities have fallen -9.82 % in 2018 but found a solid floor in the fourth quarter of the year. A BUY signal has been recorded at the MACD level and the 2018 downtrend has been broken.

The long term chart shows that the Index is sitting on its all important long term uptrend and should rebound from there.

The Philippines – PCOMP Index

The Filipino stock market lost -12.71 % in 2018 but the top to bottom fall was more like 24 %. Stocks rebounded nicely in the fourth quarter and have clearly recorded a double bottom.

Korea – KOSPI Index

Korean shares lost 17 % of their value in 2018 but found a solid floor in the fourth quarter of 2018. They are heavily oversold and sitting on a massive accumulation area. The coming rebound should take them to 2300, a 13.5 % rebound from here.

Malaysia – KLCI Index 

Malaysian equities lost -6.91 % in 2018 but went through extreme volatility during the year. The index is framed in a horizontal channel with a very strong support at 1650.

Thailand – SET Index

Thai equities have lost -10.8 % in 2018 and are sitting on a major support level at 1600, consisting of the horizontal resistance that held the market since 2013, the short term moving average and the long term uptrend.

Vietnam – VNI Index

Vietnamese stocks lost -9.81 % in 2018 after a 48 % rise in 2017.. They are currently trading in a descending triangle that could lead to significant losses if broken to the downside.

The long term chart clearly shows that Vietnam could correct significantly further.


Our macroeconomic scenario unfolded as expected in 2018 with inflation rising across the board and the FED raising rate four times from 1.5 % to 2.5 %.  

We were amongst the very few commentators to predict a rise in the US dollar and recommended to SELL the Japanese Yen at 106.5 and the Euro at 1.255. Indeed, the JPY fell towards 114 and the EUR towards 1.12

The one thing we – and we suspect no one else – predicted was Donald Trump self-defeating Trade War against China and our expectation that the Chinese Yuan would rise in 2018 was defeated.

On the contrary, the Yuan depreciated form 6.24 to 6.94 and food a floor at these levels. 

We expect the final outcome of the Trade War to yield a commitment by China to let the Yuan appreciate structurally enabling a lasting reduction of the Chinese Trade surplus.

China’s morphing into a consumer economy will ultimately lead to substantial increases in imports once the Yuan appreciates in a lasting way.

The year was also marked by a mini-currency crisis as Donald Trump enacted sanctions against Turkey and Russia and the month of August saw volatility in most emerging market currencies. The turmoil did not last and the Turkish Lira, South African Rand and Russian Ruble stabilized.

The big loser was, once again the Argentinian Peso.

DXY – US Dollar Index

Over 2018 the majority of commentators switched form a US dollar bearish stance at the beginning of the year to an overly bullish stance in December.
The Secular bull trend in the US dollar is still very much in place but a pull back towards 93 is to be expected in the coming weeks / Months before a new unplug takes place.

EUR – Euro

The same applies to the EUR and we expect the European currency to appreciate towards 1.18 in a counter-trend rally before falling further towards our ultimate objective of below 1.

JPY – Japanese Currency

The Japanese Yen held up pretty well until the December panic in the equity markets forced massive strip-losses on the traditional short positions used by hedge finds and speculators. The massive move at the beginning of January took the JPY to 104.74 and marks the end of the uptrend.

CNY – Chinese Yuan

The launch of the Trade War was really a turning point for the Yuan as investors expected China to let its currency depreciate to counter the effects of the US Tariffs on their products. The resolution of the Trade War will go through a substantial appreciation of the Yuan

Ultimately, China needs a stronger Yuan and the recent data coming out of China showing that the Industrial PMI contracted while the Consumption PMI expanded illustrates the fat the China may be more advanced than investors think on the path of transformation into a consumer economy.

GBP – British Pound

Sterling weakened in 2018 and a SELL signal seems to be confirmed on the MACDs. However, the impeding results on the BREXIT vote could send the British currency much higher if Theresa May’s plan is approved by parliament, something we believe will be the case.

INR – India Rupee

The Indian currency was taken in the mini-emerging market currency crisis of the summer of 2018 but ended up reacting rather positively. A Bottom has been marked and we would expect more appreciation from here.

TRY – Turkish Lira

With interest rates at 24 % and inflation starting to come down, the Turkish Lira managed to weather the very serious financial crisis of the summer of 2018. The trigger was the US sanctions related to the imprisoned US pastor, but the real causes were a constant reliance of Turkey on foreign financing for its expansion. The consequences will be a serious contraction of Turkey’s GDP in 2019. The Lira should keep on appreciating

RUB – Russian Ruble

2018 was not a good year for the Russian Ruble even if the depreciation was far less damaging than in Turkey. However, with the sharp correction in Oil prices, the Russian currency does not seem to offer any upside and the trend is definitely down.


Commodities had a tough end to what has been a truly bad year, with returns nearing an 18-month low and a fourth quarter loss that was the worst run since 2001. 

Among the highlights of the year, the extreme volatility in Oil prices and the impact of the US – China Trade War on soft commodities have taken center stage.

Commodities had a poor year in 2018, hurt by substantial losses in energy and base metals. The Bloomberg Commodity Index, a gauge of returns on 22 raw material futures, recorded a 12 percent drop this year after hitting the lowest since April 2016 earlier in December. It is the seventh annual fall in 11 years.

Raw materials have lost ground amid a flurry of signs the pace of expansion will slow next year, and as the U.S.-China trade war spurs uncertainty. 

That’s been a setback for bulls including Goldman Sachs Group Inc., who’ve made the case that commodities should do well as a late-cycle play, and as some of them are out of step with supportive fundamentals. 

Among 2018’s biggest losers, West Texas Intermediate crude slumped more than 20 percent amid concern there’s too much supply, while in metals, economic bellwether copper shed 19 percent on the Comex. Sugar plunged this year, extending a loss in 2017. Among the top gainers, natural gas still posted an annual gain even after the commodity took a massive hit in December.

Underscoring the risks ahead, recent data showed manufacturing in China shrank in December. China’s manufacturing purchasing managers index dropped to 49.4 in December, the weakest since early 2016, and below the 50-level that denotes contraction. Among the industries of most consequence for global raw materials, the steel industry PMI fell to 44.2. China makes half of the world’s steel.

CL1 – Crude Oil

Oil had one of its most volatile year ever in 018, rising 30 % form January to September only to fall and end the year down 22 % in December.

As we expected, Crude collapsed once the tide turned as this extremely manipulated market is in the hand of speculators that tend to follow the lead of Saudi Arabia and Russia for their massive bets. Interestingly enough, it took pressure from Donald Trump and the murder of Jamal Khashoggi in Turkey to change the fate of oil prices.

America put lower oil prices in the equation against their support for MBS.

In three months, Oil prices collapsed from 75 to 45 losing more than 30 % of their value and Saudi Arabia and Russia are finding it rather difficult to stop the downtrend. Having said that, the liquidation of the massive long positions has probably ended now and a rebound is likely in the short term

XW1 – Coal

Coal-fired power dominates the global electricity mix, with almost 40 percent of generation worldwide utilizing the fossil fuel to keep the factories running and the lights on. 

Miners are cashing in as prices in Asia average the highest level since 2011 and head for a third yearly gain, but a shift toward cleaner energy in regions including Europe and China, the biggest consumer, may help to loosen coal’s longtime grip on the market.

XAU – Gold

Add a U.S. government shutdown to the list of uncertainties that gave gold a boost in the latter part of 2018. The very negative fourth quarter in equities finally shook precious metals off their doldrums and Gold ended the year slightly negative after having fallen from 1350 to 1200.

The configuration is positive for now, even if over-extended in the short term. We expect gold to test the 1350 level at some point in the coming months.

XAG – Silver

Is silver about to break above the US$ 16 level and start a massive upward move towards 22 ? It is too early to say, but the sharp rebound form the 14 level is a good sign. For now we are taking profits after the sharp move of the past month and would re-instate positions on a clear break of the structural downtrend.

XPD – Palladium

Palladium surpassed gold this quarter for the first time in almost 16 years, clinching the crown as the most precious of major metals. The commodity used in autocatalysts has surged, defying global growth concerns that have dragged down prices of other major metals traded on Comex and the London Metal Exchange.

The white metal used to curb pollution in gasoline-fueled vehicles rallied this year in the spot market as suppliers struggle to meet demand. Investors are betting the party will last through 2019. Production will continue to trail consumption through 2020, according to Citigroup Inc.

Palladium is making new high after new highs but is becoming overextended.

XPT – Platinum

Platinum lost another 14 % in 2018 and has now been falling for 8 years in a row. The mergence of Electric Vehicles is making people bearish on its use in traditional Internal Engine Combustion engines, particularly diesel, and the demand for jewelry has been weak for several years now.

However, we may be coming to the end of the fall considering the loss of momentum but a clear double bottom or BUIY signal must be recorded to change the trend.

HG1 – Copper

Copper lost -20.28 % in 2018 as the US China Trade War killed what was a structural rally after its multi-year bear market since the financial crisis.

The world was finally getting on a strong economic footing until Donald Trump killed investments by creating massive uncertainties with global trade.

China’s economic slowdown is a significant driver of Copper’s prices and their future course will very much depend on the outcome of the Trade war.

Copper is sitting on its long term moving average for now, and the current levels should act as strong support levels.

KC1 – Coffee

Arabica coffee has slumped by about a fifth this year — the biggest loss among agricultural commodities — as the Brazilian real weakened, lowering costs for producers that are already grappling with a global glut. 

The latest report by Brazil’s crop agency Conab may confirm expectations that the world’s largest coffee grower reaped record output this year. Brazil’s coffee crop has benefited from excellent weather and traders are watching for signs how big next year’s harvest will be. Conab will release its outlook for 2019 in mid-January.


Developed-market bonds had their best December in seven years in what looks to be a vote of no confidence in the global economy for 2019.

Government debt in Group-of-Seven economies returned 1.16 percent in December as equity markets tumbled worldwide. The MSCI World Index of developed equity markets has tumbled 6.5 percent in the same period, set for a record decline for the month in data starting in 1969. 

The year was a negative year for bonds altogether, with US 10 year Government yields shooting up from 2.5 % to 3.20 % in November, as we correctly predicted at the beginning of the year.

The panic that ensued in equity markets in the fourth quarter and the collapse in oil prices at the same time led investors to completely revise their expectations for growth and inflation next year and bond markets re-priced the risk of more rate hikes.

The rally in bonds gathered pace in the latest months of the year as data showed U.S. home sales slid, global manufacturing data deteriorated, and political tensions over Brexit and Italy’s budget have worsened. 

Global economic growth will probably slow to 3.5 percent next year, from 3.7 percent in 2018, according to economist forecasts compiled by Bloomberg. 

USA – US 10 Year Government Bonds

Longer term, the picture remains bearish.

In Europe, The European Central Bank took the watershed decision to halt its 2.6 trillion-euro ($3 trillion) bond-buying program in December, capping massive monetary support even though the euro-zone economy looks vulnerable again.

The timing of the decision could not have been worse as Bond markets rallied sharply in Europe and Japan following the collapse in global equity markets.

The European economy remains extremely fragile even if there are signs that the underlying momentum is positive.

As if the data had to add insult to injury, Euro-zone inflation hit an eight-month low in December, just as the European Central Bank stopped adding
stimulus to the economy. Consumer prices increased an annual 1.6 percent in December, down from 1.9 percent in November. The decline in the headline rate was largely driven by the 35 % collapse in oil prices since September.

As the two charts below illustrate, German and Japanese bonds went back into panic mode with yields ending lower than at the beginning of the year and even in negative territory for Japan.

As a result, the stock of outstanding bonds with NEGATIVE YIELD shot-up from 5.4 trillion at the end of October to 7.4 Trillion at the end of December


Germany – 10 Year Government Bond Yield

Japan – 10 Years Government Bond Yield