Blog

GT's Preparation for Correction

Posted by Greg Tolpigin on 22-Oct-2018 12:50:19

We're pleased to share the latest market observations by Greg Tolpigin, Head of Proprietary Trading at Gleneagle Securities. Greg provides these commentaries every few months when a key theme emerges. Here Greg compares the last 5 corrections in order to develop a strategy to prepare for the next one, which he expects in 2019. Please contact us for further queries or subscribe (on the right of this page) to receive further updates. 

All Corrections Follow the Same Path

  • Market tops, volatility spikes and broad price action tends to be very repetitive and on many prior occasions I have used it to successfully navigate the aftermath
  • My view remains that this is a final stage bull market that will evolve into a bearish 2019 (separate report to follow on why).
  • As a result this note is purely focused on identifying the likely pathway into a 2019 downtrend and how to best position for it.
  • I have been cautious all year based on almost all indices outside the US signalling/beginning a meaningful correction. It has been a case of when the US joins the wider equity decline.
  • The technical similarities at market peaks and the first stages of a “breakdown” are significant both in pre-sell off price action as well as the aftermath. The developments of 2000, 2002, 2008, 2011, 2015, should help provide a framework for the expected performance in equities in the final quarter of 2018.
  • Each one of those market peaks were similar – one could argue even identical.
  • It is too late to short now.
  • There will be a meaningful bounce which will provide

–A long-sided trading opportunity

–An opportunity to re-establish short positions

–Most importantly, clean up portfolios ahead of what I expect to be a meaningful correction in 2019

 

2000 Tech Wreck: Nasdaq-100

Capture1

 

2008 GFC Correction: DJIA

Capture2

 

2011 Euro Debt Crisis: S&P 500 Daily

Capture3

 

2011 Euro Debt Crisis: ASX 200 Daily

Capture4

 

2015 Correction: S&P 500 Daily

Capture5

 

2015 Correction: ASX 200 Daily

Capture6

 

2018 Corrections & Targets: S&P 500 Daily

Capture7

 

2018 Corrections & Targets: ASX 200 Daily

Capture8

 

Conclusions

  • History shows that there is always a retest of the low & retest of the breakdown levels.
  • Irrespective of whether outlook is bearish or bullish on 2019 the coming weeks/months will be governed by the same strategy.
  • Rallies back to breakdown levels of 2860/2900 (S&P 500) and 6080/6100 (ASX 200) must be used as a selling opportunity
  • Sell offs to retest the recent lows of 2720/2700 (S&P 500) and 5820/5780 (ASX 200) are a buying opportunity.
  • Ultimately I expect that this is an extremely late stage bull market transitioning into a bear market for 2019.
  • Thus the rally back to breakdown levels should be used more aggressively to short sell and clean up portfolios to ONLY include core, stock specific fundamental opportunities.
  • The repetition of the price action during volatility spikes provides a perfect road map for Q4 2018. I used this exact same strategy for the past decade to negotiate these volatility spikes.
  • Beware of 2019, once volatility subsides markets tend to become very complacent. This can produce a dangerous situation as seen in early 2016 when the S&P 500 had the worst start to a calendar year in history.

________________________________________________________________________________________________________________________

greg_tolpigin_large_thumbGreg is the Head of Proprietary Trading at Gleneagle Securities and has over 20 years of experience as proprietary trader and high level strategist for the major investment banks including Citigroup, Bankers Trust and Macquarie Bank. He has been involved across all asset classes including commodities, bonds, currencies and equities right across the globe.

 

After a 10 year career with the large investment banks and research firms Greg formed his own proprietary trading firm successfully building the business into a multi-million dollar trading operation that turned over a billion dollars a year. This same team now runs the proprietary trading desk at Gleneagle Securities, risking their own money in line with the firm's and client's capital.

Greg has appeared on CNBC, Channel 9 - Business Sunday programme, a guest columnist for the Australian Financial Review, a regular author for Personal Investor, Wealth Creator and Shares magazine and is the former Treasurer of the Australian Technical Analysts Association.

 

 

Topics: Trading, investment, US Market Outlook, Research, Tolpigin