Buy when others are fearful
Posted by Danny on June 27, 2016
Markets fell on the brexit referendum result and fear seems to be all over the place in what looks like a kind of Stockholm syndrome. But what most commentary failed to mention is that the FTSE 100 was actually up 1.9% for the week. EU stock markets took the biggest beating, so it looks like the market is saying that leaving the EU is better than staying in.
Let’s have a look at the Nasdaq chart:
The Nasdaq is back to its May lows. It could easily fall a bit further and test the 4600 level. But we have started a new lunar green period and the Earl and MoM indicators have turned up already. So I would look for volatility to subside as overblown fears calm down. Panic selling will dry up and then stocks will start trading with a positive bias.
As I said during the Greek crisis, stand ready to buy any country that finds a way to leave the EU or the Euro. Britain is now very likely to be the first country to take that step, so I would use this to buy FTSE on any weakness. The long term monthly chart for the UK stock market happens to be very interesting:
The FTSE stays well above its February lows and that’s quite remarkable given the hysterical comments that are being made. The smart money must be buying.
Two of my three main indicators have turned up a few months ago and the slower Earl 2 is ready to follow suit. That is a favorable long term setup. A breakout above the multi-decade resistance around 7000 is possible in the medium term, and that would open the door for a further rally. Buy when others are fearful.