Managing Editor’s Note: Today we bring you a very special guest contributor. Mark Galasiewski works with Robert Prechter at Elliott Wave International and is the Editor of The Asian-Pacific Financial Forecast. He is also one of our esteemed guest speakers at the Irrational Economic Summit next week. At 1 p.m. on Friday, November 8, Mark will talk to you about how to thrive in Asian-Pacific markets using the Wave Principle and socionomics. Here’s a taste of what you’ll discover…
Mark Galasiewski | Tuesday, October 29, 2013 >>
Arabian stocks are in the early stages of a new bull market. Here’s why…
How a stock market behaves after the release of bad news tells you a lot about the larger-degree trend under way. Take Syria and Egypt for example. The behavior of stocks through the tumult of the past few years provides an excellent lesson in understanding the dominant psychology of the market.
At the start of the Arab Spring in early 2011, anti-government protests erupted throughout Arabia and the region’s stock markets collapsed. From a socionomic perspective (i.e. how waves of social mood regulate changes in social behavior), the protests reflected the negative mood attending those market corrections.
Egypt’s Hermes Index was already 10 months into a bear market when millions of Egyptians took to the streets beginning on January 25, 2011 to demand the overthrow of the Mubarak regime.
And Syria’s Damascus Weighted Index (DWX) had already tumbled 17% from a high in late 2010 when large-scale unrest directed against the Assad regime erupted on March 15, 2011.
The start of the extreme social unrest duly noted, the practical truth is that the real-time behavior of Arabian stock markets gave investors all they needed to know about the dominant trend of the time as the markets continued sideways-to-down over the next two or so years.
More recently, however, the behavior of the two markets after bad news has been sending a completely different message…
In late December 2012, reports first surfaced that the Syrian government was using chemical weapons against civilians. About two weeks later, the DWX Index ended a decline of more than 60% from its 2010 high and began a rally of more than 60% over the next several months.
Throughout that rally the civil war continued to rage in Syria, but the persistent rise in the country’s stock market – along with other markets in the region – suggested the larger trend had turned bullish.
In my newsletter, the Asian-Pacific Financial Forecast, I recognized the new regional trend in February 2013. I told subscribers: “Arabian markets have … turned up after completing their multi-year bear markets.”
Since then most have risen by double-digits, with leaders Dubai, Abu Dhabi, and Kuwait rising as much as 45%, 37%, and 34% respectively.
Egypt was the exception. The Hermes Index continued to correct into late June 2013. But the index’s rally since then has shown resilience in the face of continued conflict in Egypt.
In early July the index rocketed higher as the army forcibly removed the nation’s first democratically-elected president from power. Clashes between the military and supporters of the deposed president have killed thousands of people since then, yet the Hermes Index has moved steadily higher.
We see a similar resilience in Syrian stocks. The nation’s civil war has continued to rage, and even threatened to erupt into a formal international conflict in mid-2013. Yet the DWX Index recently hit new highs.
These simple observations regarding market behavior suggest that the dominant psychological trend has turned bullish in Syria and Egypt.
But when viewed from the perspective of the Wave Principle, the price action in the two indexes provides a basis for predicting the extent of their next big moves. Look at this chart:
Now let me explain.
- Syrian stocks have completed an initial five-wave move up from their January 2013 low. This means they will likely pull back in the short term before embarking on another five-wave advance within their larger-degree advancing pattern.
- Egyptian stocks completed a fourth-wave triangle at the June 2013 low and have since begun a fifth-wave thrust to new all-time highs. This implies that Egyptian stocks should gain at least 65% from current levels.
The price patterns in the two regional markets with the greatest social conflict at present point to one conclusion: Arabian stocks are climbing a wall of worry at the start of a new bull market.
It’s time to take advantage.
P.S. I’ll go into more detail on Friday, November 8 at Harry and Rodney’s Irrational Economics Summit in La Jolla. I hope to see you there.
In the meantime, you can learn more about my newsletter and the work I do. Start here.
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