By: Stefan Penkov
It is very impressive to watch the panic taking over. We had a hard week on the markets and many investors thought it was the end of the world. It was bad, very bad but I do not think we are living the financial crisis of 1987. Not yet! There is so much debt accumulated in USA and spread around the world that a financial crisis is imminent but from my point of view this is only the warning signal. When it will come, it is going to be very bad and ugly and we will be witnessing many bankruptcies in the financial sector and many well known financial companies will disappear. My gut feeling tells me that we are not there yet. When we live similar markets moves we should always watch and keep in mind the long term trends. When the long term trend is still intact then short term turmoil is not an issue. If it is broken, it becomes very serious and we should look for an exit. Let’s take a look at the markets and the possible extension of this down movement after the last trading session of the week.
Both Dow & NASDAQ are still above their 3 years and 5 years uptrend. Dow can go down to 11800 without breaking it. Bellow this point we will talk about a long term bear. NASDAQ could go down to 2250 without breaking his long up side trend. The S&P TSX composite has room to go down until 12500 and even to 12000 before turning bearish. The picture for the FTSE 100 is different. It clearly broke its long up trend and is turning bearish. The last confirmation will be a stay bellow 5500. We have the same difficult situation with Nikkei 225. It fell 16.58% in a matter of 6 weeks. It is a pretty bad performance for a short period of time. I would wait though for a break and stay bellow the June 2006 low of 14045 before declaring a bear market.
On the currencies side, the US$ index is correcting from its recent lows but do not expect any major changes in its very bearish trend. This trend is here to stay for many more years to come and these small temporary moves up are only a normal way to correct the exceeds in the accelerating trend. The Euro should hold at 1.33US$. We are waiting to see if the British Pound will break the 1.95US$ level. In such a case it can go lower to possibly 1.83US$.The picture is not clear with the Canadian dollar either. Staying higher than .93 will reaffirm its move up. The next days should show us the direction. The Australian dollar did not hold the pressure very well and could go down possibly to $0.74 but again we have to wait and see if the worst is over or not. We have the same wait and see picture for the Japanese Yen but here it is on the positive side. The Yen was very impressive recently and it is probably turning positive. A break bellow the $108 will confirm a bull for the Japanese currency.
The commodities were affected too but are still holding. However, gold and silver shares did take a beat as everything else. Gold is still over its up trend line but silver is a bit worrisome. Yet we need some more trading sessions to confirm the trends. Crude oil is doing better than any other resource and is staying the best bet for now.
Good investing and best regards,
Stefan Penkov
