Tuesday, July 18, 2006
World events are creating artificial conditions for a steep market sell off. These events have an artificial impact, because the correlation between the US economy and events in the Middle East, is somewhat dubious. Nevertheless, we have been looking for a significant market bottom sometime later this year, but with the perception that risk must be priced into the market based on unsettling world events, we may in fact get a significant low as early as the next few weeks. The four-year cycle low, we wrote about yesterday will still likely put pressure on the rebound from our upcoming significant low, but with this hard sell off, the four-year low could actually come in the form of a double bottom or even a higher low. In other words, we are very likely nearing a long term buying opportunity. For now though our focus must remain on what is right in front of us, not what could be around the corner. For now the immediate trend is down and this will impact the performance of most stocks in the market. Rallies are likely to get sold and oversold will likely continue to become very oversold until we see capitulation. When will capitulation come? It will come when it comes, no sooner, no later. It is best not to try and guess, but rather to trade with the trend.