The recent market falls are interesting in light of the very bouyant market conditions. That is, credit is more available than it has been for some time, global volatility measures are down considerably on where they were during the Global Financial Crisis, trade has lifted considerably (with large year-on-year increases), and central governments have acted to keep the market operational.
The latest moves could simply be seen as part of the “sell in May and go away” market tradition. They could represent what the ongoing media comment suggests – which is “worry” about European growth, it’s impact on China’s recovery, sovereign debt issues etc. In such an environment, even logical moves can be interpreted in strange ways.
An example is todays news that Germany has moved to ban naked shortselling of some large company shares and some bond debts. What this means is that you cannot speculate on the movement of these assets by selling what you don’t own. It still allows those who own the underlying shares or bonds to hedge their position – but speculators have to hold the underlying assets to be able to trade… and they don’t like doing that, ’cause it increases their risk and reduces the potential profit. Here are a few of the responses. Obviously, the speculators don’t like the idea, dragging out arguments about liquidity and the like. Perhaps these are correct, and perhaps those speculators aren’t causing the problems, they are simply wanting to take advantage of them. Perhaps. Recent experience suggests that this is only partially true. Speculation has caused issues, and it exacerbates problems when fear grips markets.
Even those credited as borderline investment genius find it difficult to operate in this market. When trying to “time” markets for speculative profit, the risks are high.
Please remember the disclaimer that attaches itself to anything on this site – that nothing is to be taken as personal advice. These charts are almost “public domain” now – with mainstream news updates often carrying examples, as if we all understand exactly what is going on..! Behavioural economists would be most bemused, as the more common such charts become, and the wider the distribution then the more likely it is that any trends will be self-fulfilling.
Here is our look at the current charts for the Australian Sharemarket. A look at the ASX price levels shows a clear break down through the 4500 resistance level.
The Multiple Moving Averages show a clear downwards trend and “fanning” of both the blue and red lines
Furthermore, the 30% retracement of the gains experienced since the March 09 was exceeded when the ASX 200 fell below the 4445 level. What does this mean?
Although fundamental market news remains buoyant, if continued the trend could signal a further down leg to take the market – down to the 50% retracement of the market level gains since March 09, which is 4075. This is another 7.5% on the “down leg”. For longer term investors, this “breech” of the 30% retracement level if tested successfully and the market holds these levels, could signal a very quick “bounce” and opportunity to add to their portfolios.
DISCLAIMER: I am not an expert in Technical Analysis nor hold myself out to be one. The comments made are simply my interpretation of the above graphs. These comments should NOT be viewed as personal advice as they do not take into account your personal position and objectives and you should consultant your professional adviser before making any decisions based on these comments. As an example, at any given point in time, we may be recommending to some people that they add to their positions, while others may receive sell recommendations for part or all of their portfolio and others again may be told to simply do nothing. In other words, your own position cannot be advised on from this website.