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Well much has happened in the last week and if I was writing as I did last week on the mother of all share indices – the DOW – I would probably have taken an even harsher view. So maybe the poor local market will cop my wrath.
By way of background the last week has seen continuing and wholesale routs in global equity markets. That statement of the obvious is for those who have just come back from that mythical desert island. Things have looked a little scary and even our local market, which is underpinned by a still very hot economy, has been running scared. And your editor yet again has gone to cash. Mainly because I don’t know where the bottom of this black hole is.
Technicals and fundamentals can be thrown out of the window as markets are now driven by fear. The current sentiment is the opposite of greed, which sends markets sky high and causes them to overstretch. Fear sends markets the other way – and to an extreme. So what I am about to unfurl cannot be supported by rationality just as there is little rationality at market tops.
One final point before we look at the charts: this is now not so much a credit crisis but rather a confidence crisis and it’s causing domino-like falls in markets.
So short term XAO:
click chart for more detail
This is a 30-day Elliott and it suggestss a dead cat bounce – or a relief rally, call it what you like – and then like the DOW it goes into a darker and deeper black hole. A hole about 5400 points deep and at worse 4850.
No rationality here, but traders like you and I will send it to the pits as we short. Just as Wave Fives are the easiest to trade in upward moving markets likewise the final wave is easier on the downside. Tune into SharesBulletin as I cover this strategy in more detail in the coming weeks.
The next chart is a 60 weekly:
click chart for more detail
And this tells us there is a ray of hope. After all the weeping and gnashing of teeth there will be a peep of blue sky and we will all realize that we have overdone this doom and gloom. Plus we will realize that economies can recover faster these days and things were not really as bad as they were in the nightmare of H1 2008. And we will coolly resume the ‘super cycle’. There will be value like we saw in 2003. Can you believe that?
But it could be a few months before this little ray of sunshine blooms. Wait to short or go take a break.
Enjoy the ride
Tom Scollon
Chief Analyst
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