Can you talk about the developed and the emerging market index? Considering the correction in 2018, where are we headed?
There is a corrective trend across the globe. Majority of the markets, with the exception of the US market, has been going down practically all of 2018. The US market at least had an interim rally but most of the other markets have been going down pretty consistently. We may see a bounce at this point because some of them the emerging markets have passed into a bear market territory.
It is conceivable that we get some kind of a bounce but there is no guarantee that the overall decline has come to an end. We can get a good rally and then we will have to see whether the market can strengthen. The indicators are all extremely oversold.
Oversold is the condition of selling pressure. We would need to see enough rally to alleviate those oversold readings that have been in place now for a week or more.
Are we going to see a repeat of 2008 when the indices fell hugely or will this be a fairly normal bear market correction?
You have to take it step by step. Some of the markets are already in bear market territory but if these oversold readings cannot be alleviated, we may have a further downside after some kind of a rally. We have long-term monthly momentum sell signals on practically all the global markets.
Those signals are not easily reversed. It would take a period of time, stabilisation, rallies and tests of the lows. I do not think it is clear whether or not we are out of the danger zone as yet. India has been one of the better performing markets.
What do you make of the Indian markets? We may be off in the small and midcap stocks, bu the Nifty is still holding on?
Nifty has an important support at 10,000. If that is broken, that becomes a one-year support but until this point, it had a pretty good run in 2018 and it could pull back a little more towards what we would call the 200-week moving average which comes in just above 9000.
That would be a pullback to the prior breakout to new highs. It could happen but you do not have the same topping process in India that you see in a lot of the other markets.
India is relatively better placed than other emerging markets. What do you think of Indias positioning in terms of outperformance?
Yes, I would say it is. Yes.
What is your view on crude these days?
Crude has actually moved to major downtrend lines for Brent. We are at the 2012 downtrend and now the price of crude is pulling back a little bit. It got almost to $87-88, where the 2012 downtrend came in. If it can hold without breaking below $72, then Brent can start up again and have a chance of getting through the downtrend. Right now, it looks rather neutral.
What is your view on the US 10-year treasury yield as well as the dollar index because you are mapping those two very closely?
Long-term history does not necessarily show that they move in tandem but our work on the long-term interest rates profile is that the 36-year trend for falling rates is ended. The reversals, the long-term trends for interest rates have run from 22 to 37 years and this was the 36th year falling rate cycle. The move to 3% on the 10-year has given you a six to nine year base, a softer base, and has now broken out to suggest that we are moving into a new cycle for rising interest rates.
Interestingly, the reversal from rising rate cycles to falling rate cycles are very sharp like an inverted V as it happened in 1981. But the reversals from falling rate cycles to rising rate cycles have all been quite long — two to 14 years and this one has taken about eight to 10 years to make it turn. There are always deflationary pressures at work in the falling rate cycles.