Pessimism Could Take Us One Over the Eight. Cheers!
Comment of the Day

January 11 2016

Commentary by David Fuller

Pessimism Could Take Us One Over the Eight. Cheers!

No degree of optimism is safe. That’s my conclusion after listening to the country’s Chief Medical Officer. Previously, it had been thought that although over-optimism was of course bad, a certain daily dose of optimism was good for you.

We haven’t had much optimism around lately. What is it about holidays and the Chinese stock market? After the August holidays, people were told that a plunge in Chinese share prices was supposedly imperilling the world economy. Now the same has happened after the new year break.

Yet we can be sure that if the world economy is heading for disaster, it won’t be because of the Chinese stock market. Admittedly, it does seem dire for the market to fall by 7pc two days running. Also, the Chinese authorities have been remarkably clumsy in apparently trying to manage the fall and then withdrawing.

David Fuller's view

Roger Bootle is not succumbing to the increasingly bearish comments of many commentators, which is encouraging given his long-term track record. While most people expected volatile conditions, there were reasons to be mildly optimistic at the beginning of 2016, or so I thought, despite the deteriorating market breadth on Wall Street and the breaks of uptrends. However, last weeks technical performance was dire and the two biggest worries persist – uncertainty over China and the dire performance of commodities.  

This has turned market sentiment very bearish.  The same situation occurred in August but we did not have anywhere near so many overhanging top formations and market breadth was not too bad.  We now have short-term oversold conditions.  Since 2009 these have provided reasonably good recoveries in most developed markets.  I will be pleasantly surprised if the same happens this time. 

This is discussed in further detail in the Audio.

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