The bear market is growing stronger according to the way stock indexes are behaving. In a bull market, when the market becomes oversold based on my timing indicators (Top 20 Differential and 13-day BTI), the FTSE 100 will rally. In a bear market however, what is oversold becomes more oversold.
The FTSE will rally but the difference between bull and bear market is that in a bear market when the FTSE is oversold prices can still drop 100-200 pts before the rally starts.
This is due to increased volatility, investors panic and the moves extend. The bottom line is that going long when the timing indicators are oversold during periods of high volatility carries a higher degree of risk. Stop losses are at risk and this is why it is always preferable to go long during periods of low volatility.
The best strategy in the current environment is to go short on counter trend rallies. But we need to see some better economic numbers for the market to rally, right now investors are still worried about faltering global growth.
The decline is in five waves and the 13-day BTI is oversold. The FTSE will rally but the question is from what level? In a panic situation the levels become less reliable. I wish volatility would return to normal, this would make my job easier. There is potential for the FTSE to drop to 6200 before the rally starts.