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When markets bounce like they have in the last couple of days, it is important to look at the volumes. The Dow Jones volume on Monday and Tuesday (I am writing on Wednesday) was low compared to the down days:
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This suggests that while this is not a robust rally, it is a rally nonetheless. It may run out of steam as I suspect there are some shrewd short-term players treating the market as oversold.
A similar volume picture exists for the Aussie market:
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But if we consider On Balance Volume (OBV), there is an encouraging divergence:
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The market may not have reached its zenith of more than three years ago but volume support (as indicated by OBV) is firm. That is, there has been strong support for the market over the last three years.
For the All Ordinaries there is an even more pronounced perspective - in the short-term the market is lower and the OBV is higher:
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In the past few weeks as the market has headed lower, the OBV has held up well and has even gone higher. There is an even greater major divergence on the monthly chart:
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None of this will stop the market going over a cliff if it has to, although in the short-term I don’t think that is likely. But having said that, this jittery market will soon start looking for the next piece of news to spook it.
In the short-term there could be further easing until we see a wave five complete:
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If this occurs we could gain a clearer perspective on the next move.
Enjoy the ride
Tom Scollon
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