The sharp drops in stock and commodity markets since short-lived rallies late last week have obviously been caused by fears of a runaway medical emergency emanating from China. We have been bearish of stock markets since our ‘sell’ advice in the January 17th edition and so this drop in stocks was expected, regardless of the apparent cause. As yet there is no reason to cover equity shorts, but it is worth pointing out that the advice came from weekly-scale signals whose effects can last for months.
During this ‘outrun’ period it is quite possible that much greater weakness will develop and we will try to call the twists and turns as usual. There have been a few bottom extensions in US indices in the minerals and oil and gas sectors, where weakness set in much earlier than in the general indices. This is to be expected as a lot of sector ‘churning’ and ‘rotation’ happens at these crucial moments. Here are two:
These indices tend to track the price levels of their respective commodities and there have also been bottom extensions in crude oil, copper and some crop commodities. Copper and crude first:
The ‘wash-out’ in commodities has also extended into some of the soy complex, where prices of Beans and Soy oil have dropped (a resumption of interrupted Chinese buying has been the great hope of price recovery there). Here they are:
This means that you can add to the energy longs that we first advised starting to buy last week and add some copper too. As ever, when prices are falling quickly, buy at a measured pace, only becoming aggressive if some signs of a turnaround begin.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com
