Derivatives

Inverted Panic Takes Equities Higher

Author: Aleksandar Adamovic November 7, 2018

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Here is a quick note post the mid-term elections in the US.

We are seeing several risk indicators continue lower. European credit, iTraxx main, continues lower and extends the recent sharp move lower. We have been mentioning this as a strong indicator of what could be happening to the European equity markets, a squeeze moves higher. Note iTraxx trades down to early October levels and has wiped out the entire “panic” move.

 

Eurostoxx 50 versus the iTraxx chart shows clearly that Credit is discounting much less risk ahead than equities. Credit is “implying” European equities have more room to go higher in short term. Eurostoxx 50 orange, iTraxx white (inverted).

 

Note the negative trend channel for the Eurostoxx 50. A close above the 3340 resistance and this seems to have more room going higher. 3300 is the first big resistance to watch should we start a squeeze move higher here.

Meanwhile, people are puking protection as volatilities implode post the elections, just as we have been pointing out over the past week.

 

Source; charts by Bloomberg

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