On the 21st May we wrote the following:
Due to lower highs and lower lows on both the Dow Industrials and Dow Transports there is now a change of trend in existence in the markets. How long this correction will continue no one can be sure. A bounce can be expected at any time due to the fact that the market is terribly oversold based on Stochastics and the McClennan Summation Index. However, I do not think we have seen support lows in place yet. What is the reason for this capitulation? As mentioned in my last brief I believed the "flash crash" of the 6th. May mortally wounded all indices from a technical pointy of view. It will take some time, probably the whole summer, before some degree of confidence is restored.
Since this note was published nothing has changed to alter our view. In fact the market movement on Friday merely confirmed that there is a high probability that the market is now starting to price in a potential double dip recession. When you add to this mix a technical breakdown in the Chinese market and the possible breakup of the Euro zone the end result is a choppy jittery financial market with evolving fundamental risk.
For those interested in trading our advice is still to move on technical signals in bear momentum ETFs such as "TZA" (small cap.) or "TYP" (technology). For those interested in a bullish momentum trade I would keep focused on the emerging market ETF "EDC" but this needs to break through the 24-dollar level before it will be a trading candidate in my books. These momentum products are for very active traders who have the time to closely monitor the market every day. While the task is difficult it is very very profitable at the moment due to the volatile nature of current market conditions.
For value traders there continues to be fabulous targets on our radar watch list. However, due to current bearishness few buy signals are coming through. This is ok. Patience is the key to long term investment success. It makes no sense to risk capital when mister market continues to hold secrets. When the buy signals speak they will be solid and clear. Remember when the Dow sell signal came through in the fall of 2007 it was over a year before a buy signal registered (March 2009 in fact). It was boring but clients avoided the devastation of 2008. I am not saying that there will be such a long wait this time but experience shows that in a lot of instances the optimum investment location is on the sidelines particularly if investors do not have the confidence and the knowledge to know when to enter shorts.
Dow Industrials: Weekly
Dow Transports: Weekly
Emerging Markets Bull x 3: Daily
