In this article, we will give new forecasts for the stock markets. First of all, we will review the current situation we find ourselves in; Secondly, we will show new analyses and information provided by the market; and thirdly, we will give new forecasts for the stock markets both in the short term and in the medium term.
CURRENT SITUATION
We said last week that “The indices may continue to rise in the short term, but the risks that we are close to a medium-term top are there, and they continue to add points… f the SP500 fails to break above the 4,120 points and turns downward strongly, losing 3,900 points, we would have confirmation of a market ceiling in the stock markets, which would resume the main or background trend, which is bearish.”
If, on the contrary, it manages to exceed 4,120 points with ease, we could give a new path to the rise for the stock markets of the order of 6-7% additional from current prices.
Well, we are already in the area of 4,120 points of the SP500, as we can see below.
And if you remember the forecasts we gave for the Chinese stock market, we expected a significant rebound to the top of its channel, which is exactly what it has done, as we can see below.
Therefore, we are in a critical area from a technical point of view. The normal thing would be that from now on, the indices would turn downward since their medium-term bearish guidelines “should” prevail and make the main bearish trend resume, but that is not what we believe will happen, as we will show below.
NEW INFORMATION PROVIDED BY THE MARKET
Let’s go back to the China stock market. We have evidenced the great fall suffered in the stock market by the 2nd economy in the world, in which we appreciate falls of more than 60% from maximums.
The blue box above corresponds to the subsequent formation we have expanded on in the following daily chart. It is an inverted head-shoulder-shoulder formation, which is a reversal formation that goes from bearish to bullish.
In addition, it projects a minimum rise, which is the height of the formation. Hence we have superimposed a 2nd rectangle that would mark the minimum rise of the index. This formation is also confirmed, and it is normal for prices to now fall back to lean on the black horizontal line and launch an upward momentum that is usually very strong and fast.
All this leads us to think that the Chinese stock market can rise 20% from current prices (or 25% once it makes the retracement to the indicated area).
And if this is so, and given the strong correlation between all the stocks, we think that the stocks could follow a similar evolution. Some would rise more than others, but they could all go quite rhythmically.
SHORT-MEDIUM TERM FORECASTS
Therefore, our forecasts are as follows: although the indices could rise slightly over the next few days, we expect short-term falls of around 3-5%. And after these corrections, the indices would try to display a significant upward leg. Let’s look at these forecasts for some of the most representative indices.
We have drawn these forecasts for the Dow Jones in the following graph: after a correction that leads it to lean on the recently surpassed guideline, the index could try to find the annual maximum in the area of 37,000 points.
The forecasts for the IBEX 35 remain the same as we gave last week. After a short-term correction to the area of 7,800-8,000 points, the index could climb to 9,000 points.
For the German DAX 40, it will not exceed 14,700 points in the coming days and therefore try to fall to the area between 13,500 and 13,900 points. Once that movement is made, we could expect an attack to the maximum area of 16,300 points.
INVESTMENT STRATEGY
Is it now time to buy stock? In line with the above, we will not buy the stock now. We will wait for a correction in the markets in the short term, and after that, we will return to the stock market because we want to capture that possible significant rise that we expect in the stock markets.
Although we will try to diversify in this bet, a vital position will go to the Asian and Chinese stock markets since they have fallen a lot and the potential they offer in the medium term is very interesting.
ARE WE IN A BEAR MARKET?
This question is essential, and we will give our point of view. An intense inflation scenario, such as the one we are living is preventing us from having a “usual” bear market, like the one experienced in the dot com crisis of 2000-2003 or the financial crisis of 2007-2009.
We only have a scenario of comparable solid inflation, which is that produced in the 1970s. If we look below at the behaviour of the Dow Jones during those years, we see that the index was lurching up and down for many years. years, we didn’t see the Bear Markets we were used to then.
These strong lurches undoubtedly make investing in the stock market much more difficult since the changes are swift and have a long journey. For this reason, in recent months, we have incorporated improvements in our analysis systems to capture this new market scenario in the best possible way.
In line with this, if the forecasts we have given in this weekly report come true and, for example, the Dow goes to maximums, this does not mean that we would have entered a bull market, quite the opposite. After these rises, we could expect new downward turns that will cause the indices to fall sharply, just as happened in the inflationary decade of the 70s.
In conclusion, our most probable scenario for the stock markets has changed, and we expect it rises for some indices of the order of 20% in the medium term. We are not going to buy now, as we will wait for the indices to fall, as they have rallied a lot and have resistance in sight. After these short-term corrections, we see a good time to buy. We will share all this week by week on the web.
