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I have chosen four charts this week, the daily and weekly 90-day Elliott for the Dow and the Australian All Ordinaries. On plain old line charts it is so much easier to view simple representations:
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In the absence of a trend on the horizon all but one is showing an ABC pattern, which means we can expect sideways movement. That is not to say we may not see strong movements that may feel ‘trend-like’ but overall the markets are satiated after a good run, albeit a volatile one at times.
Elliott tells us little more than that, although that in itself is of great value as it is a powerful statement. We have to be careful not to constantly seek magic from charts. We should be satisfied with ‘plain vanilla’ analysis, accept it without emotion and move on.
We, like Elliott, should calmly wait for the next accumulation of data that may change the pattern count. This may take some time - perhaps weeks - and as we are now in August this could take us through to the usually rocky September period. Elliott does not flip around and change counts very often, as long as we use sensible time frames. I have reservations about periods less than 90-days.
So what about the XAO Daily, which is showing the prospect of a fall this month to 3900/3800? Are we to believe this?
I would say the likelihood of this happening is rather slim. On the other hand, I do not dismiss it outright. Until we get into an upward trend - on the back of improved confidence in the world economic outlook, which we know is some time off - I will not be gobsmacked if I hear the DOW fell 500 points today. We live in fickle times and we should expect the unexpected at any time and even more so after a good run.
The risks now are to the downside after almost three months of gains, if only because there are fewer buyers. Sellers could grow in number, especially if news arose that was interpreted as ‘bad’. I express it in that way because what matters is how news is perceived. In a way, news is neither good nor bad - it is how we view its impact on the future that counts.
So traders now have to think about taking some money off the table and investors should sit tight and join me on the bench.
Enjoy the ride
Tom Scollon
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