“NEVER TRY TO CATCH A FALLING KNIFE”
It was February the 2nd when we published a report about how far the equity markets will rally, drawing your attention to the saying “When people become over optimistic and they do not fear, that is a point where you have to worry”
By Tuesday the 6th U.S. equity markets collapsed almost 15% from their all-time high. By today the 8th of February, markets are trying to recover almost half of their losses. This price action doesn’t necessarily mean that the worst is over. Looking at the VIX index known also as the fear index, we see that is still on the highest levels ever. This is what we call uncertainty and this is what’s telling us that we may have a bigger correction on the down side in the coming weeks. Many traders may see this as an opportunity to buy hoping for a reversal, however, it is not wise. Our title above is an old saying in the trader’s world and it would be wise for you to have it in mind. Last year’s rally and in continuation of the January 2018 rally, one would argue that it is obviously a scam rally without any solid fundamental background. So, a correction of a minimum 20%, is what we are expecting. The best to do in such a high volatile situation is to wait. Taking the DOW index as an example from the highest ever level of 26700 a correction of 20% is around 21360 a level more realistic for current values and current market worth. Before buying equity indices, we must always have a look and compare the VIX index. When the VIX is stabilised in the lows of around 15-20 and the DOW stands around the level of 21360 then you can start investing.