CALL FOR A DOW BOTTOM, BUY THE DOW TODAY AND WHY.

A few weeks ago I wrote about this coming sell off and even correctly predicted when it was to happen, call it luck maybe but the writing was on the wall. So what's next?

The Dow has bottomed on today's 15 500 intra day low, forming what technical analysts will call a mid day reversal. Why do I say so.

The big drop was caused by a lot of factors including trading machines that sell just because the market is selling. Cooler human heads came in and bought the cheap socks, taking advantage of the situation. This was the best buying opportunity of the year and I will explain why.

1. The sell off this week started because of a slow down in China which investors believe s a mirror of the slowing global economy. The second reason was the impending Fed hike expected next month. The thought of cheaper money ending has spooked investors to seek protection i treasury bonds.

Having said that, I want to show how these two factors will also be gotten over with soon. First, the globe is not in a recession but is slowing. The fear factor on wall street was caused by China's index failing to support its key resistance level of around 3525 points, and the sale off was overdone.

2.  Bear markets are sustained by a recession and we do not have that at the moment, we just have a slow economic growth. Underline, growth.

3. Whether the Fed raises rates or not, it will not matter months from now. I don't know what they will do for raising rates sends a message that the US is doing well but risks further market turmoil. Whatever sell off will be caused by the Fed raising rates will not last for long. Remember the taper tantrum? The market clearly found its feet again. Even now if rates are raised, the market will rise again, because there is growth in the world, though not much.

4. The sell off therefore is a re balancing of asset prices and not a sign that a global recession is looming. Asset prices are being rebalance because the Fed"s low interest rates that has been feeding this market is coming to an end. Precaution should be taken not to read this as a sign that a recession is around the corner.

5. Why is China selling off? This is because the Chinese stock market bubble burst. That has nothing to do with the world economy. Investors should now enough that the Chinese stock market is not correlated to the real economy and the drivers of that market are scared inexperienced retail investors who price their market according to what their government says or does. Oops, US investors as well are a community that trades on Fed comments. Cooler heads will recognise that in the bigger scheme of things a rate hike, which is likely to be small, will not hurt the bigger economy.

Arguments have been placed on the possibility of a systemic risk arising fom a Fed hike tantrum. Well, then those who had been swimming naked will be exposed and disposed, and a healthy environment will emerge. An environment with real businesses making real money. Which justifies this sale off as a repricing of assets to represent a truer picture of valuations.

However, since QE brought about a lot of liquidity in the system, a few weeks or days after this, the cash will find its way back into equities. There is just too much cash out there following this sell off that will be hungry for cheaper shares and because of this, another bubble will resume, taking the Dow back to over 18 000 before the end of the year. All this selling is panic selling and we will get over it soon.

WHAT IS THE MARKET WAITING FOR?

This market is waiting for a  guidance from the Fed or China or Saudi Arabia. Remember the falling oil prices are also part of the reason why we think China is slowing, a pick in the oil price might restore some confidence on global growth, even if that up-tick will be caused by a reduction in supply. However it looks like oil is running down to the lower 30s.

I think he Fed will reassure the market that US growth is in line but they are worried about global event ad will therefore hold on raising rates. By doing so, they will satisfy the camp that thinks no hike means America is doing bad, at the same time pleasing the camp that wants lower rates. Whether that in itself will take markets higher for long remains to be seen. In any case, I expect market volatility to continue as the Dow gyrate around 400 to 600 points every day from now. these huge movements in points will become the new normal for a while as the market churns in the 15 000 to 16 000 range. I expect the churning however to be producing a little bits of marginally higher highs until we get n all clear from some future even that will cause a spike to he upside.

This market has taken a lot of bad news lately and prices have become very low so any period when these current fears are over, a big rally will resume.

This is different fro 2008 because the economy is ok for now. It is also different from last year's October sale because these current fears will not take one day to end, so expect volatility but not an outright market crush or bear market.

A real crush is coming but it is not this one. This is just the fake pregnancy pains. Give it a few years from now when this current financial engineering and tempering with asset prices will end up strongly affecting main street. At that time, these fears we have now will be even more pronounced and will lead to he real crush. As for now, we still have an option of Q4, Europe is easing and Japan is also stimulating. These financial energy drinks are working for now but with no real food, the economic body will reach a point where this stimulating policy will not work any more. For now, your money is safe in the market. Buy this deep, and remember, I said it first. At a time when analyst are too afraid of calling a bottom.