Post-Brexit: European Stock Market Is Not In A Bear Market
It seems that investors already forgot about the Brexit. On Monday, stock markets globally continued to slide, but that was followed by a huge rally on Tuesday and Wednesday.
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 market 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.
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