Here Comes The Bounce

I love cats and the image of Bouncing A Dead Cat off on a hard floor certainly churns my stomach. But that - a dead cat bounce - is what is happening in the equity indices starting with Europe, as we speak.  By 12:00h local time today,the DAX is up almost 2.5%, the wider range of EuroStoxx also shows more than 2% upside.

German DAX Oct '15 to Jan 11, '16
"More downside to come, to double the low of
October. Source: chartnexus
This comes after a plunge of 1000 DAX points in 10 trading days! The volatility is tremendous, both down and up. It is therefore no surprise that the bounce is wild. Still, I would be extremely apprehensive to invest into this bounce. Not because it cannot be traded: Some short term traders will have a field day. My trading style requires more careful and time consuming changes. And this particular bounce will be limited, ending within the next 4 trading days.


STI - already below the autumn lows, bound for
much lower lows: my targets for end of January
are 2600 but possibly going down to 2388, if panic
sets in. Alternatively (or additionally), the SGD
may drop to $1,50 per 1 USD. Source: chartnexus
After that short sharp rally, the next step down will follow. Some markets will form a double bottom, like Australia and Shanghai equity indices, while others will extend the losses to the lows in September and October last year, and some indeed beyond (see Singapore STI chart, left). If my calculations are accurate the final lows should come in the last week of January.

For any investors who still want to follow a buy and hold strategy, I suggest to choose an asset class that is not correlated to financial markets this year. You would be hard pressed to find one.

I Will provide the next update in early February. Of course, if you are a member of my investor family, you get the news in more detail - and the appropriate advice - well before the turn. 

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