Some bearish omens are starting to appear throughout the region.
Double top scenarios are starting to appear in most markets as previous highs are retested. Hongkong, Korea, Singapore, Japan, Malaysia, Philippines and Thailand and the US markets all fall within this category.
In Korea, a short term top has broken within a second top, making a six month top scenario that one often sees before a major reversal.
Should we be heading for the hills?
Not just yet. One of the limitations of this system of 'analysis' is that the crystal ball is, for the most part, hazy. Rarely does a clear signal appear.
When it does, there is usually confirmation from many sources. All markets that are correlated - in the case of Asia, nearly all markets except Japan and India - move together and many will give clear signals together.
We've seen that in previous major tops in 1997 and 2000 and, in the case of the major bottoms of 2003, when almost every market in the world broke out in March of that year. While many markets are exhibiting similar scenarios, there is not yet a clear bearish signal to be found in any market. Not in Asia, Europe nor America. Not even a major medium term support has broken for a major index.
Often, by the time a clear signal has emerged, much downside has already occurred. A clear short term or medium term signal is therefore usually of little value. The market often rebounds well before one can trade the reversal. However, in the case of a long term trend reversal, this system of tops and bottoms is often very useful. There is usually time to park a substantial amount of one's assets in cash and hunker down for months or a year or more. While you won't get out at the top, you'll get a sufficient advantage from a clear long term signal to miss out on a major portion of the long term bear. With luck, there will be a clear long entry signal, as occurred in March 2003. The long term trend is therefore what I am mainly interested. It is leisurely, tradable and more reliable.
There are many instances where a potential long term signal appears, only to disappear within a few weeks. The potential top in Korea could well turn into a continuation of the bullish trend. Viewed on a log scale, the volatility of recent months does not appear so menacing. It's important to keep volatility in perspective. The log charts assist in that end.
It is also important not to get carried away with all the fuss and panic in the media. So much short-sighted speculation can only lead to confusion. Keeping an eye on the charts, in particular, the long term charts, preserves your sanity.
The upshot is that one has to be patient and resist the temptation to judge the event before a clear signal emerges. You might want to lighten the load as bearish omens appear. But you will likely lose more by being left behind in a strong bull market, than you would save by making a premature bet on its impending reversal.
In summary, all of the markets in the world are in clear long term bullish trends commencing 2003. While there are some scary signals and much chatter in the press, there is no cause to presume that the four year global bull has run its course. It will happen one day and we will likely get a clear indication. But that hasn't happened yet.
With that sage pronouncement, I will leave you for a couple of weeks. (I'm heading off to India for my annual (or not-so-annual in recent years) pilgrimage to the ghats of Varanasi and the deserts of Rajasthan.)
Do take a look at the global ETFs in the 'other markets' page. They will give you an idea of the global trend as well as an idea of how to diversify globally.
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