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As I sit and write my editorial – sitting on 100% cash and watching markets rise solidly over the last few days – I challenge my conviction. My conviction is that markets still have not found their final low and we are merely seeing a bear trap.
But I always ask myself ‘what if I am wrong?’ And if I am wrong I still have lots of time to get set. But at this point I will hold my position humbly.
I have been watching with great interest copper as I think it is a very good lead indicator – and we have chartable data. This latter point is important to me as I cannot live without my technical analysis.
So to the chart:
click to enlarge
I always aim to present a chart that I think best suits the most likely scenario. Of course we cannot be categorical about a particular outcome and it is in fact dangerous to become attached to any possible result. It is all about probabilities.
The likely scenario in the above chart is the prospect of a relief rally before a further leg down. This is typical of numerous markets, instruments at the moment – and this is not surprising as the world economy is at the cross roads!
In a bear market it is more than likely the relief rally will not be fully met and in fact it is just as possible that a slide will continue without an attempted move up.
I expect we will see a small rally but that is not the important aspect. The material issue is the likelihood of another major low. Perhaps the final – before June possibly and then possibly the big climb back.
In the coming days and weeks further data will be added and that will change the picture. That is to be expected but for now risk has not departed yet.
So despite the short term bullishness we may be seeing, I remain a doubter – Thomas, the twin, Didimus the disbeliever – the perennial contrarian.
Enjoy the ride
Tom Scollon
Chief Analyst
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