Friday 5 February 2010

The Lows In Risk And Related Assets

BOTTOM LINE: The sell-off that began in the second week of January 2010 is likely coming to its end around current levels. I expect there to be a multi-week advance or at a minimum expanded range trading, with some indices challenging their recovery highs.

Below is a 4 hourly chart of the German DAX. The index fell in a beautiful five wave impulse from the high of the move, with very clear internal structure. The final drop, which started at 4 is almost over, and a fifth wave low is expected shortly (today-Monday).

On a number of metrics (for example SP100 percentage of stocks above 50 DMA and the McClellan Oscillator, both below), the market is now more oversold than it has been at the July 2009 and November 2009 lows, and nearly as oversold as in March 2009. Therefore, I expect a rather strong bounce, of about 5-8% in major averages.

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