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As I watched the markets this week – well up to Thursday when I write my column – I contemplated investors may have reason to think all is forgiven, it is all over and we will all live happily ever after and there will be no more pain. Think again.
I have been wrong many a time and will be wrong again but this week’s market action of a 5% surge will not be enough to lure this hard head into thinking all is good.
I would like to look at copper as a good litmus test for what is going on. Let’s go straight to the chart:
click to enlarge
What we see above is typical of numerous equity markets world wide, most sectors, most metals, and most commodities. The chart says we are likely to see a rally – a relief rally, a bear trap – call it what you like. And then yes we are going to see another ‘shoe drop’ – another leg down.
When such short term rallies take place there are some early believers or pundits who see a quick quid. Some impetuous punters think they are going to miss out and jump on board as they have heard everything is cheap.
And then oops some more bad news. Don’t ask me what it is but there is some lurking. And down the markets go again and this time even lower. Some real pain, real value and then markets start their real and sustained rally.
I don’t think Santa Claus will bring it in this 'annus horribilis' but we may see a new world in 2009.
Enjoy the ride
Tom Scollon
Chief Analyst
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