Trader Update – black boxes are running markets

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The Traders’ Updates are usually password protected, and usually only available to clients. However, this is an open post because the current market movements are indicative of trends that have evolved strongly since the onset of the Global Financial Crisis (GFC), and these trends can be seen as “public domain”.

One of the themes in markets that we in Wealth & Security Planners see developing is the continuing correlation in knowledge and actions across markets. More specifically, fundamental research on companies, economic sectors and long term outcomes is still being done here and there but it is highly active (and reactive) trading that is driving markets day-to-day. There are all sorts of reasons that this could be happening but we are really here interested more in the fact that it is actually happening.  This has perhaps always been the case in one way or another – the difference now is that this appears to us to be a key driver of activity and outcomes.

And so long-term, strategic financial planners are keeping a wary eye on day-to-day movements of markets. We look over each others’ shoulders regularly to make sure that we don’t become too distracted by short term”ism” and still provide advice that is more in line with long term expectations and alternatives rather than short term speculation but we are more aware of the day-to-day than would have historically been the case.

And so on to todays post. John has noted previously that the short term trends suggested that a “threshold” was about to be tested. Just to prove that most market watchers are reading from the same book (“watching the same monitor”, “listening to the same evening news commentator” – insert whichever version of this applies to yourself), we today saw that key threshold tested, and an immediate movement in the market.

Here is John’s commentary… :

As a demonstration of how share markets are currently being driven by traders and “automated processes”, NOT fundamentals, here is a chart which shows that as the Australian sharemarket approaches the 4600 upper “resistance level” of the recent “trading band”, we see immediate selling…

So it would be expected that unless some “very, very positive” news is received that is enough to push markets through this 4600 resistance level, we should expect to see some weakness (falls) over the next few weeks and, dare I say it..? a revival of all the same old already known, “bad economic news” that has been doing the rounds this year. Will it be “continued worries about the European soverign debt issues” or “Chinese growth slowing” or “US unemployement” or some other such pre-existing condition?

The graph below is a picture of the “momentum” of the overall Australian sharemarket during the day. It clearly shows the positive momentum becoming negative on achievement of the 4598.5 level for the S&P/ASX 200 Index (note: the 100 level indicates a “neutral” momentum point).

If that isn’t a confluence of factors then what is..?

DISCLAIMER : Neither John Claessen nor WSP Financial Services Pty Ltd (AFSL No. 237463) claim to have knowledge or expertise in the area of market charting nor interpretation of short term movements. The comments above are merely observations of the charts shown. These comments MUST NOT be relied upon for the purposes of making investment decisions and MUST NOT be considered personal investment advice.  Remember, any charting or individual picture is highly unlikely to be of use all by itself. An experienced trader would consider a range of indicators, trends and analysis before coming to any clear conclusion.  Any investment decisions (buy, hold or sell) must involve a full consideration of issues such as personal capacity for risk, investment objectives, growth/income expectations, taxation, cashflow, micro as well as macro economic issues and would ideally be part of a comprehensive approach to financial planning. Obviously, a website such as this cannot achieve even a fraction of these requirements, hence the need to make this disclaimer clear and obvious.

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  2 comments for “Trader Update – black boxes are running markets

  1. Brad Barnes
    September 10, 2010 at 2:18 pm

    Hi John,
    Is that an inverted head and shoulder pattern forming? Might see a break out above 4600 by November.
    Brad

  2. September 10, 2010 at 9:06 pm

    Hi Brad,
    Interesting point. i had been wondering that myself but John is not so sure. Either way it certainly does point to a fairly strong move should that threshold be broken.

    Regards
    michael

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