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Back in March when the markets took off there were many reasons to believe markets globally could have fallen much further. So few investors got on board as risks were still high. Many traders – short term players – may have taken some positions but few would have been fully invested. Well done if you picked the low.
But let’s take a look at the market action since then using a daily bar chart:
click to enlarge
You can see the different gradients throughout the life of this recent move. Initially the market surged but then the pace eased and really in the last few weeks the market has gone no-where.
This is not surprising so that is why it bemuses me why investors buy in when markets are topping. Now I understand ‘buying for the long term’ but it is not too tough to get ‘timing’ just a little better.
Was it you buying last week? Buying BHP at $38.60? No it could not have been.
The key question now is: is the retreat we are seeing just that or is it the beginning of a deeper low.
We can see the first scenario in the 60 day Elliott chart:
click to enlarge
Watching the oscillator will give us a clue. If it comes back to zero but then falls significantly below zero I would expect the market to go into a new slide and that scenario we can see on the 60 week Elliott:
click to enlarge
If we were to go onto a slide I would not expect it to happen overnight – it may take several months.
So there could be great money to be made going short in the coming months. If you do not subscribe to the scenario in the above weekly chart but reckon there is some risk you may just want to at least hedge.
That is you can hold your view but take some shorts on one or more indices or take out options.
To do nothing is an option but maybe a dangerous one.
Enjoy the ride
Tom Scollon
Chief Analyst
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