We recommended, right after the Brexit news hit the wires, to stay calm and follow price movements.
This is what we wrote last Friday:
We have to say that the dust needs to settle first. Investors should not react too fast. It is tempting to do ‘something’ in this volatile environment, with non-stop news and crazy charts of futures markets. (read Post-Brexit what now: are investors supposed to panic or stay calm)
Moreover, when it comes to the stock market, we said there would be basically three potential scenarios unfolding: the start of a huge collapse, a mini flash crash, a short term retracement. This is what we wrote last Friday:
The German stock market index, DAX, tells us that 9000 points is the line in the sand. A structural close below 9000 points, defined as +5 consecutive closing prices, would be extremely concerning for stock bulls; that could indicate the start of a collapse.
So far, we have seen a sharp decline followed by a moderate recovery, which, so far, points to a flash crash scenario. (read Brexit: stock market collapse, flash crash or buying opportunity)
It now starts appearing that the stock markt went through a mini flash crash last Friday.
The DAX index is recovering, or, at least, is refusing to break down. That may sound counterintuitive, but the facts are clear: the DAX did not breach 8800 points.
Depending on how things unfold next week, we believe a buying opportunity is in the making, and “risk on” is returning the markets, no matter whether that is counterintuitive or not, it is what the charts are telling us.
This article is brought to you courtesy of Taki Tsaklanos.