Inverse ‘Summer Crash’ takes shape
By Michael A. Gayed
July 30, 2012
With the one-year anniversary of the ‘Summer Crash of 2011’ coming up, I thought it might be worth addressing the big fear that seems to be out there over a repeat this time around in equity markets.
After all, Europe isn’t fixed, corporate earnings are languishing, and all around the world it is becoming more and more clear that growth is slowing.
Given that I have a particular affinity for the Summer Crash of 2011 since it was one of my major calls last year made on June 8th, I hope to provide some insight on where we were back then, and where we are now.
First, the Summer Crash of 2011 call was based on a very specific distortion I was highlighting through various intermarket relationships I track. The bear trade of utilities XLU +1.17% , consumer staples XLP +1.14% , and health care XLV +2.40% had already been outperforming in a meaningful way in the months leading up to August, but the bond/stock price ratio relationship wasn’t reacting in as powerful a way as defensive sectors were at the time. I spoke about this last week on CNBC in a segment which can be viewed here.