The sell-off in various types of asset that began at the weekend has now produced some extensions. The main agricultural victims of the renewed hostilities between Presidents Trump and Xi have been Soya beans (with products) and Cotton. Both have now extended:
This fits our often-stated view that many agricultural commodities can be bought hereabouts and we expect rebounds to begin very soon, perhaps immediately. As the old saying has it: “Buy the rumour, sell the news” meaning that an expected bullish event has already been ‘priced in’ to the market by the time it happens and the same is true in reverse, when the expected event is bearish i.e. “sell the rumour, buy the news” as here. Now that tariffs on Chinese goods have been increased (as warned) a relief rally would be a normal consequence.
This is also probably true of stocks. There have been two bottom extensions, both in minor European indices:
These sometimes are the only signals we get because the relatively thin trading in these more obscure corners of the world can mean that the crowd’s mood is revealed better here than in more crowded markets. Don’t get over-bearish now – we would take some profits on shorts.
One possible outcome from the present situation of ‘discounted gloom’ is that the markets will indeed rally for a few days and there is a logical place for that rally to reach and then stall:
This is not a forecast, but ‘scenario planning’ and we would be nervous about adopting long positions on such thin evidence. Nonetheless, we do expect two-way trading in a generally volatile environment, as we have been advising. The present equity market situation around the world does not look to us like a one-way street so we are tempering our bear view here.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com
