Written by d_walter on July 1, 2010 – 08:51
The correlation between the strength or weakness of global markets and the Euro has been well documented. Throughout this market correction since the end of April, the Euro has been heading down. Over the last couple of weeks, it has found support and it now appears to be breaking upwards through the levels of late May. If it continues to get stronger, we should expect our markets to follow.
If they don’t, it will be a warning sign that long-term correlations no longer matter and all bets will be off. We’ll have to wait and see, but assuming the correlation hasn’t disappeared after all these years, I expect markets to follow higher.
Back April 15 at the height of optimism, I said the following:
“Psychological indicators of market optimism (e.g. CBOE equity only put/call option ratios) are at an extreme not seen in a long time and even though this can be bullish over the next few years, they usually indicate that recent market gains will be totally given up soon enough.”
I think this panic bottom is almost over. Calling it to the day is impossible, but its close. Oversold indicators are at extremes not seen since November 2008. When the rebound comes, I believe it will be quite sizable.
