My view now is that Markets are looking quite Oversold (as I will show in the Charts below) and even though they might fall a little more, we are due a bounce in the Short Term. How strong that bounce is likely to be and if it can last is of course something we cannot know. However, I have indicated some Technical Scenarios where things could get very bad indeed - so these need to be monitored.
I have thought hard about this and it seems to me that once the Triangle had broken down, I should have put on more Short Position and used a Tight Stoploss just above to avoid getting caught out if the Markets Rallied.
With the Markets looking Oversold and most likely to bounce soon, I want to Close my Short Position or perhaps Close half of it. The danger in closing too soon is that if the Markets continue to fall, then I have no protection from a Hedge - this would add to the Stress and Worry of falling Markets. As I mention further on, I will be watching the Candle Patterns with a view to Closing the Shorts and will then be planning to Short again once we bounce - this is not easy, and I will have to be very careful.
It seems to me that the most likely path forward for the Markets is a rally soon and possibly for much of September but then another Big Fall in the Autumn - maybe later in September or in October. The recent Low on the FTSE100 at 6072 is critical here - if we go below this level, I think things could be very serious and maybe we will be entering a Bear Market……….
Until there are clear Technical Signals like the one above or one I mention in the text below, I will assume we are still in the Bull Market and trade on that basis. If the facts change, then I will change my view if I need to and go into ‘Wheelie Grizzly Bear Market Mode’ (which basically means Shorting everything !!).
There is lots of chatter and Noise about China Slowdown and stuff - we can never know what is going on here and the News Narrative is playing with our Emotions. The best antidote is to ignore the Doom Mongers and look at the Objective Facts provided by the Charts.
“Trade what you see, not what you feel”………..
First up is the Longer Term Chart going back to just after the Credit Crunch at the point where Markets started their amazing 6 year Bull Run. The thing to note here is the Black Uptrend Line that I have drawn in has been ‘violated’ by the latest Price Action as I have marked with the Red Arrow. This is not a good sign. Let’s be clear, this is potentially a very dangerous situation - however it is possible for Prices to ‘Overshoot’ a Trend Line and it not mean that we are now entering a Downtrend. We need this Price to quickly get back inside the Uptrend Line for things to be ok. In addition, we need the FTSE100 to stay above that 6072 Low.
The thing to watch out for here is if the Price Bounces very soon (probably over the next few days) and then moves up but hits the Black Line which then starts to act as Resistance rather than Support (Remember - it is a principle of Charting that ‘Former Support becomes Resistance’ and vice versa) and then bounces down again.
If this happens, it is what is called a ‘Confirmation’ that the Black Uptrend Line has now become Resistance and it means we are probably entering a Downtrend. This would have me concerned and would need a Major Rethink on Strategy - being Long would not be ideal and Shorting would become the order of the day. People say that Charts cannot indicate Down Markets - that is wrong - they can and this is an example of how that can happen.
The Red Arrow marks where we have had a ‘Dead Cross’ between the 50 and 200 day Moving Averages - this sounds bad and it is not good at all. However, look back to the left of the Screen at the Blue Arrow - a similar Dead Cross happened here but we pulled through.
Another Bear Market thing to watch is if the 200 Day Moving Average and 50 Day Moving Average both turn down together and are falling. This is not necessarily the End of the World but it’s a good sign things could be betting ugly. At the moment the 200 day MA is sort of flat to slightly up (the 200 Day MA is the lighter Blue Line and it’s less wiggly than the 50.)
Putting my ‘Cock on the Block’, I would guess at a bit more Selling tomorrow and maybe Tuesday and then a bounce will start on Wednesday. However, of course the bounce could start tomorrow - things look very Oversold.
I will follow what the Charts / Candles tell me. What I would like to see is one of the following:
- A Harami Candle Pattern - this is the ‘Pregnant Woman viewed from Side’ 2-day Pattern where the Market will open tomorrow at the Low from Friday but will then rise all through the day - this would be a great Reversal Pattern indicating that a rewinding of last week’s down moves in is train.
- A Hammer Candle produced either Monday or Tuesday - this is one of those single Day Candles with a Long Tail down and a narrowish body, where the Bears try to drive the Price down Intraday but the Bulls charge in and take the upper hand.
- A Doji Candle which sort of looks like a Spinning Top with a narrow Body and Wicks (Tails) that are about the same length - this does not indicate a Reversal of the Downmove yet but would hint that one is very close.
If we get the Harami or Hammer Candles, then I might be very tempted to take my Short Position off or maybe to halve it. The danger with taking the Short off is that any bounce might not be long lived - maybe just a couple of days before it turns down again - so I would need to be nimble.
The Chart below is the German DAX Index over 6 years - this is the best Proxy for ‘Europe’. Note the Price is still nicely within the Uptrend Channel, unlike the FTSE100 - I suspect the FTSE100 has suffered due to its Oil and Miners.
Note my Blue Arrow marks a line of Horizontal Support which may hold.
Many people look at the DOW but I tend to skip it really - with just 30 Companies it is not a great Indicator of the health of the US Markets - and it is worth appreciating that the US Markets are THE DOMINANT FORCE IN MAJOR INDEXES - “if the US sneezes, Europe catches a cold”.
This could be a big driver for the FTSE100 - if the US avoids a Bear Market (and there is no sign it is entering one) then the FTSE100 will probably follow it.
The S&P500 has 500 Companies in it - I bet you didn’t realise that !!
On this Chart, we have the Long Term view - still in a nice Uptrend and a lot of room to move down before the Black Uptrend Lower Line fails (marked with my Black Arrow) - nothing to worry about here yet. My Blue Arrow marks where we are now.
If you now cast your eyes left to the Blue Arrow, note the Hammer Candle that I have marked. It seems likely to me that we need a Hammer on the Weekly Candles to enable the Market to Rally. This suggests more Selling and then a Reversal during the coming Week. This is the same on all Major Indexes - should be interesting to watch for.
It is possible that we get a Harami - the Preggers Woman one - if so, we could rally from that.
Pretty much same as S&P500 in most respects. RSI 30 also and therefore Oversold but could go a bit lower before a turn up.
Ha Ha, time to wind up the Goldbugs again - my favourite bit of the Week.
This is a very Long Term Graph of Gold. Note the Blue Lines mark the Uptrend and my Black Line and Red Line mark the new DOWNTREND.
My Blue Arrow points to a Doji Candle - this suggests the Upmove is running out of puff. The Red Arrow marks the Topline of the Downtrend - this will be hard for the Price to breakout of - however, if it does break out of this Downtrend, then Goldbugs would finally have something to really be cheering about.
Just to dampen the spirits again, the Black Arrow marks the 200 day Moving Average line - this will be Resistance for the Price to get over and may cap further gains in the short term.
God knows what Oil is going to do - it has been an amazing Downtrend with no real signs of a break in the almost relentless move down. My Chart below in the Bottom Window has the RSI readings - note my Blue Arrow shows the RSI is very Oversold but look to the Left at my Red Circle - this shows that even though the RSI is low now, it can and does go lower - it is also worth bearing this in mind when looking at RSI on any Charts - No Indicators are foolproof and perfect - they are just the best Indications you can get.
That’s it for tonight - it’s gonna be an interesting week I am sure !! wd