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As I write, investors are buying back in thinking this is a cheap opportunity because global markets have spent the last few days in a slide – apparently because of “fears”.
Fears of what? Some analysts say it is because of easing commodity prices. Really? I would have thought that would have been great news. Look what copper has done over the last 20 years:
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Some raw materials are have risen as much as tenfold over this period. It doesn’t matter how insatiable global demand is, a substantial rise will ultimately impact prices and such levels are not sustainable in the long-term.
Could it be that markets are just pulling back because they have got ahead of themselves? I concede that maybe the world is not in dire straits – at least on the surface. Perhaps markets have exhibited over-exuberance. The markets are going to head lower - not fall out of bed, just ease lower.
When markets ease we cannot be sure where they will finish up. I am not suggesting this is a big unknown; rather it is simply difficult to be precise. The other ‘known’ is that even in a slide, markets take a breather.
Let’s look at where we’ve been:
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And where we’re going:
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Well, at least that is my view. We are seeing a relief rally – to maybe 4,800 or so - and then down to perhaps 4,200. Will the rally just bring the lambs in for slaughter? This relief rally will attract a few buyers but the big sellers will dump stock when they want to lighten up. 4,200 is where the market was almost a year ago and investors who have capitulated in the last 12-months and bought in will also dump in panic.
This is how markets work.
Enjoy the ride
Tom Scollon
Chief Analyst |