Selected Article

Could it be a pear-shaped recovery?

by Timothy Straiton
Tuesday 16th June 2020

The period of trasition from a bull market to a bear market is difficult to understand for many market participants, especially the non-professional ones.The human bean is a creature of habit and as such tends to grasp onto unrealistic expectations which are based on past patterns of behaviour, a dangerous strategy when it comes to investing in the stock markets which are dynamic in nature.

Looking at the Vix, volatility index, we can observe how the recent phase of complacency has been overshadowed by a rapid rise in uncertainty, moving from 23.50 to 44 withnin 6 trading days.

The daily chart of the Dow Jones Industrial Index shows the 14 day relative strength index has broken its upward trend. The current price level of 25763 is well below the upper Bollinger band of 27668. While one can expect this level to be re-visited in the immediate future, the chances of a rapid retreat thereafter are high.

Never had the equity markets strayed so far from economic reality as they have done currently and although we have seen many crashes in the past, none of them have had the swiftness and magnitude of this one or have destroyed so many jobs. These are facts which one should bear in mind before tampering with this potentially lethal market environment.


 

Charts courtesy of