22nd December 2008: Short term bottoms
are appearing in Asian and non-US markets: EFA and EEM. Some of these bottoms
have good volume: Thailand is a good example. The US could be in this category
if the Dow breaks 9,000 on good volume.
These short term bottom scenarios give hope
that the world might be bottoming long term at the current level. However,
that is just a hope. These bottoms are all too small to reverse the current
down-trend. (Exceptions might be Thailand and Taiwan. But the region and
the world is more likely to move together.)
The first sign of hope for a long term bottom
would be a breakout from the falling trend that began for some markets
last year in October, and other markets, June this year. EFA and EEM topped
this year. The falling trend is much shorter than that in the US - already
15 months. EFA and EEM and the markets that these ETFs cover have a chance
of breaking out from the resistances that define their falling trends.
It will be interesting to see in the next few weeks whether we see any
such breakouts.
But breakout from those trend resistances is
just a first sign. It would be clinging to straws to make too much of them.
At most we could expect short term rallies. As I have said before, it will
take months, perhaps a couple of years, of bottoming to make a persuasive
long term bottom for the current crash, given the extent of the falls we
have seen since May this year. My best case scenario is that markets around
the world spend next year bottoming. That means retesting previous lows.
We should also guard against the complacency
of expecting that global markets have seen their lows and are now in the
recovery phase. Some blue chip stocks in the US, such as GE and BAC, suggest
that those stocks are only midway in their falling process. These blue
chips are highly suggestive of a new low for the index next year. Although
it's possible that they go lower while the broader index goes higher, they
give cause for pause.
Patience and perseverence is my motto in times
like these. Eventually we will quite likely get clear bottoming signals.
Patience is often rewarded in such cases.
All numbers are approximate; arithmetic
targets for falls are less likely than log targets; short and medium term
targets are not included in this table; refer to country pages for further
details
