The WIG20 Index closed below lower downtrend line:
It's no longer lower-low lower-high pattern and current mixing signals (like today's very high close in US) make the situation even more unclear. I'm assuming market will rather continue downtrend; nevertheless, we should not follow our feelings, but what we see on charts.
The stock market has been never easy. When technical analysis tells us nothing, maybe it's time to get familiar with other forecasting techniques. I'm not a big fan of The Elliott Wave Theory, but The Business Cycle theories are quite interesting and whatsoever they were positively verified over last centuries. In short - the economic cycles involve shifts over time between periods of prosperity and periods of recession. Take a look at The Kondratieff Theory (after AppFunds blog) for example.
The picture below (shamelessly stolen from BigPicture blog, originally created by M.Blackman) summarizes the concept pretty well:
The Economic Cycles theories are not accurate, it is hard to time the market just by them. Nevertheless, they are giving us general overview in which stage we are. I believe we are somewhere between Late Expansion and Early Contraction: stocks are down, bonds worldwide are somewhat killed by high inflation (polish bonds are exception due to high interest rates and rising value of PLN - they are very good investment for foreign investors now), but commodities are still strong - just take a look at Oil, Silver, Gold, Sugar, Cocoa, Coffe, Orange Juice or Soybeans (more of futures here).
According to theory we should now expect a downtrend in commodities and then wait for rally in bonds. The economic cycles theory has proven its value, but remember the trader has to be flexible and keep watching charts.
Sources:
[http://www.kwaves.com/kond_overview.htm]
[http://futures.tradingcharts.com]
[http://bigpicture.typepad.com/comments/2006/09/the_economic_cy.html]
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