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It always amuses me when I hear Wall St and Europe were down ‘on the back of falls in the Asian markets – the previous day.
It all becomes self fulfilling – it is like looking in mirrors, more mirrors and yet even more mirrors. The big Mama of markets is of course Wall St and let me tell you, no-one listens to what happens in Asian markets. They are insignificant in the overall context. What Asian markets might follow are pre-market moves - during their trading day - on Wall St and so does Europe. Rarely does either market go out on a limb.
What we also need to remind ourselves of is that many of the headlines are written by cub journos in different financial capitals throughout the globe. And of course one is following the other – reading what their contemporaries have written in a different time zone a little while ago.
The reporting is generally bland and at times downright misleading. On a local level, morning news reporting of overnight action is atrocious.
At times such as these – when there is considerable uncertainty, the question to ask is: Have we reached a low or is this a dead cat bounce? We all look for something to attach to that might give us a glimmer of hope to finding the next market move. But who could pick such a move on Wednesday on Wall St – a blast of almost 3%. Who knows where it may be tonight or in two nights.
At times like this I resort to my trusty Bollinger Bands. Take a look at the current showing for the DOW:
click to enlarge
Now you might say it is up and down like a yo-yo. True but look a little closer and you will see there is some pattern to it. In a range trading market, which technically were are still in, a share price or a market will move from the top band to the lower, and back again and again. If you are smart at trading these moves you make a lot of money – but the trick is knowing which of the last bumps is the last.
If you look at the period February to April we saw the band continually re-hit the upper band. That period was a medium term trend and we can see this – where the bands were moving in a mainly parallel fashion. But May June we have seen the opposite – continually hitting the lower band.
Now the bands are widening – and that means more volatility. You might say that we all know this because of the big Wall St jump Wednesday night. If we go back to Tuesday we can see we were already being told ‘beware sharp moves’:
click to enlarge
Take a look at Bollinger – a well regarded ‘Analyst’ and tool.
Enjoy the ride
Tom Scollon
Chief Analyst
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