May 16th, 2010

A World-Wide Bear Market

I may have been the one with the blinders on. At the beginning of April, in “Some Opportunities Overseas“, I suggested that many investors were acting like horses with blinders on by not taking a look at foreign markets, inserted some charts with what looked positive trends and wrote:

“With all this doom and gloom [referring to our economy and the deficit] how could stocks go up and why should anyone put their money at risk instead of leaving it in money market accounts? Nevertheless, while there’s a nice chunk of money parked on the sidelines, stock markets around the world have been gaining ground. If you’re leery about the US markets, take a look at how constructive foreign stock markets have been recently. In short, foreign stocks, especially those in emerging markets, have convincingly broken out of a six-month consolidation (leading US markets) and are now forging ahead.”

Instead of wearing blinders, I now a feel like nothing less than the other end of a horse. The Euro is sinking, the European Union economy looks like it’s in shambles and China is looking to put breaks on their own real estate and economic run away economy. Today looks like the polar opposite of what we saw on April 2. Rather than the world’s laggard economy, the US and $US now is touted as the world safe haven.

What appeared to be breakouts now look like heads on potential head-and-shoulder (or double-tops, horizontal channels or descending triangle) top formations in many of the world’s stock markets. In many ways, they now look just as precarious as does the US stock market. Note how many of these indexes have crossed below their 200- or 300-dma’s and that many of their moving averages have actually turned down. Also check out the OBV volume indicators (click on images to enlarge):

  • EWZ (Brazil)
  • FXI (China)
  • EWT (Taiwan)
  • EWA (Australia)
  • EWH (Hong Kong)
  • EWS (Singapore)
  • EWU (U.K.)
  • EWG (Germany)
  • PIN (India)
  • EWQ (France)

This is a world-wide phenomena. All countries around the world have run out of money, including the US. Anyone who thinks we will weather this and not be impacted must be living on another planet. Gold is quickly replacing the $US as the world’s reserve currency (the store of wealth).

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  • Minnesotalee

    … at least all the quasi-bulls will now be convinced to get out. This still leaves the technicals to be in SOUND shape. The Euro way over sold; RSI below 20. Will not go lower. European economy is still growing in a "V" shape recovery. All economies are still positive not negative. China's growth would be admired by all global countries w/ GDP > 8. Wouldn't we die for this. In all defense the Euro crisis was the catalyst to allow the technicals to pullback after a long move up from 666. My tech charts remain in a bullish long-vertical and wide horizontal pattern. It has not indicated a bear reversal- only a correction commensurate to the huge reversal from Mar. 2009. Bear (oops) with this market and buy here; we're at the bottom of gthe correction and not in a global turndown. The bears have seen this Euro issue as a vehicle to get global stocks down so that those that missed the move up can get back in. But they can't get it lower sustainably. Next major up move will begin shortly. Don't get out. Maybe Jesse's move to buy a month ago was the signal for the correction. I'm sure it is time now for his pessimism for the rest of us to get in. Remember Jesse that the 1295 I called for, and remains valid after this pullback, was half way (1220) obtained between your maximum target of 1150 and the objective price of 1295. This still remains the price objective in the next few months. Then we will project an even higher number by end of 2010– maybe SP1400. All I need is the pullback to be played out. This is the time!!!

  • Jesse

    joe, glad to see you pointing out what has been developing in the charts. investors can not continue to ignore the growing problem. China's market is down 25% from highs and no ones talking about it. Why is that? The US is now being looked out as the best economic hope? That's scary!
    Lee, my best wishes to you my friend. Greed has a way of causing even the best investors to lose money.

  • Minnesotalee

    2010, as a FAILED reverse, but looking at a POSSIBLE reverse H&S that may bust the bear's chops and head in the directional technical pattern that my method employs. Patterns can't be predicted, but developed patterns can yield direction. I'll go with mine since this H&S stuff is not what I follow. It may produce a late technical move. What's your take

  • Joe

    Lee, you may see 1300 perhaps even 1350 but I think we'll see 1050 first.

  • Minnesotalee

    Joe-I lost first part of my last reponse. This is what I wanted to write- the reverse H&S pattern in Feb. had failed (all patterns do have a statistical failer rate; we just need stronger patterns) and now we could be looking at a forward (bearish) H&S or on the contrary we may end up with a reverse H&S while testing the probability. Both however I want to emphasize has not yet materialized. I just want to wait and see and not hope for a particular pattern to develop. Then the actual direction can determine what pattern made sense. Thanks.