We are at the second phase of a classic bear market - the panic stage.
The recent selloff has taken our regional benchmark, the MSCI Asia ex-Japan, and other global equity markets to new bear-market lows. According to the Dow Theory, a bear market normally takes investors through three phases: distribution, panic and despair. We are at the panic stage as we move through a month that has more than a passing acquaintance with financial catastrophe. In Asia, the two markets that look most vulnerable are India and Indonesia.
The panic phase. This is the second phase of a classic bear-market pattern according to the Dow Theory and is typically the most frightening: buyers begin to thin and sellers become more urgent, price action typically accelerates into an almost vertical drop, volumes also increase dramatically. Such points invariably produce major topping patterns, continuation gaps, extremely weak breadth and major Dow Theory trend confirmation. The panic phase usually overshoots on the downside relative to existing business conditions and is followed by a relatively long recovery or sideways movement before the third phases begins. In the table below we highlight our preferred bear-market lows and possible overshoot downside target in an Armageddon-type selloff.
Back to basics. The Dow theory is the granddaddy of all technical market studies, and as at Friday's closing levels the Dow Jones Transport index reconfirmed the major Dow Theory sell signal that was issued in January. The Dow Jones Industrial Average has also triggered a large head-and-shoulders pattern with a decisive move below 10,800. This is a very bearish event and gives a potential downside crash target of around 7,500.
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We are at the second phase of a classic bear market - the panic stage.
The recent selloff has taken our regional benchmark, the MSCI Asia ex-Japan, and other global equity markets to new bear-market lows. According to the Dow Theory, a bear market normally takes investors through three phases: distribution, panic and despair. We are at the panic stage as we move through a month that has more than a passing acquaintance with financial catastrophe. In Asia, the two markets that look most vulnerable are India and Indonesia.
The panic phase. This is the second phase of a classic bear-market pattern according to the Dow Theory and is typically the most frightening: buyers begin to thin and sellers become more urgent, price action typically accelerates into an almost vertical drop, volumes also increase dramatically. Such points invariably produce major topping patterns, continuation gaps, extremely weak breadth and major Dow Theory trend confirmation. The panic phase usually overshoots on the downside relative to existing business conditions and is followed by a relatively long recovery or sideways movement before the third phases begins. In the table below we highlight our preferred bear-market lows and possible overshoot downside target in an Armageddon-type selloff.
Back to basics. The Dow theory is the granddaddy of all technical market studies, and as at Friday's closing levels the Dow Jones Transport index reconfirmed the major Dow Theory sell signal that was issued in January. The Dow Jones Industrial Average has also triggered a large head-and-shoulders pattern with a decisive move below 10,800. This is a very bearish event and gives a potential downside crash target of around 7,500.
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