When I was sixteen, I lived in Dublin for a year and a half, and I remember that around this time young Irish people used to playfully ask, “Which would you prefer, fright or death?” The logical choice was to answer “scare”… no one would want death! Well, this week, the stock markets on both sides of the Atlantic seem to have joined that game, opening a bearish gap in the North American indices last Thursday that generated a real scare for investors. Now, the big question is whether this drop is just a pause in the uptrend or the start of something more worrying.
To answer this question, last week I already mentioned the importance of the fifth principle of the Dow Theory, which maintains that an upward trend continues as long as there are no clear signs of reversal. In this sense, he recommended being attentive to certain key supports that, for the moment, have not been lost, such as 11,560-11,600 points on the Ibex 35 and 2,180 points on the Russell 2000, the US small cap index. Remember that the Russell has yet to reach its 2021 highs, located just over 10% away from current levels.
The key now is to see if the Russell continues towards that objective in the coming weeks or if, first, it prefers to give us an additional “scare”, with a drop of 6% to the September lows, where the yellow line is located in most of global indices. As long as these September lows hold, a drop could be considered a simple scare that would move the indices 10% away from their last peak, which would present an excellent medium-term buying opportunity with a much more attractive return/risk equation than the current one. If this fall is confirmed, the market could give us real “Christmas gifts”, which I will help you identify.
Regarding the operating strategy, I recommend waiting for the indices to approach the September lows before making new purchases, especially if key supports such as 11,560-11,600 points on the Ibex 35 or 2,180 on the Russell 2000 are lost. In that case, an appropriate strategy would be to apply the “accordion” technique: slightly reduce stock market exposure to accumulate liquidity, which will allow you to take advantage of the buying opportunities that the market could offer in the coming weeks. Now, if the indices were to lose the August lows – where the red line is located – then we would talk about something more serious, the time to retire to “winter quarters”, assuming that we are facing a scenario of “death.” ” and not just “scared”.
#fear #death
