Every time I am away from my office the markets are always active and this latest break is no exception.
Reading back over my recent notes, my concerns were certainly well placed. The last few days before I went away, I mentioned that I was “really, really worried”. I gave my targets for the S&P as 2400 and 2160 next year. As we now know, that target of 2400 was met in a flash. Interesting that it roared through that level on the downside, then back up through it the next day and then the following day came back to have another look at it before bouncing again. At the beginning of December I was concerned that we could be “in the throes of forming a major Wave three down. If that is the case, then it is going to be rather unpleasant”. That turned out to be the understatement of the year.
So where to now. As I have said for the past couple of months, I believe the S&P topped in late September and everything since has done nothing but confirm that the bull market is over.
Would not surprise me if we now spent a month or two of rallying and falling before the next major wave down. Would love to see the S&P rally to about 2600. Then in the next phase of the bear market I anticipate it is likely to halve from that level. OK that target is not cooked yet but be aware that it could happen.
As always, I must look to see what could be the salvation for markets – I come back to the NASDAQ. It looks to me that of the major indices that I follow, this is the one that might save us from Armageddon. As well, I saw the Fear Index get to 2 on the day my target was met. I can’t remember ever seeing it quite this low. As well almost ten times as much money went into falling stocks that day as rising stocks. This is one of my favourite indicators and seeing this level of panic selling suggests at the very minimum a worthwhile rally which of course we have already had.
Gold – I felt that there was something going on under the surface in gold but could not work out what it was. Well as we are now aware, it was straight old fear – as the markets collapsed, money went looking for something tangible and where else could it land than precious metals. Take a weaker Australian dollar and the Australian gold price is the best since July 2016. This is obviously what was behind my idea that a lot of little miners were looking as though they were forming base patterns. Been some support in the area but still a bit disappointing. In the short term gold has got fairly overbought. At the same time, my hourly chart is looking like it is in the throes of forming an upslanting wedge. This is potentially a bearish pattern and suggests we could get back to around 1265 when it does correct. Silver finally managed to break out of the sideways move that it has been stuck in for the past few months.
Our index was saved from the savage fall that Wall Street had by having an extra holiday in the middle of the “panic”. Quite a few stocks and indices went back to their 2016 lows as I had suggested. However, the overall index – XJO – was supported, again, by the two big miners. In the short term we are still locked into the sentiment from New York. More tomorrow.
(20min delay)
