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Not quite but I have learnt over the years that when a market starts to slide we should never assume where it will end up.
Let’s go to the charts. The All Ords daily bar chart:
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It is useful to look at a bar chart with raw volume, especially on days we are watching. And last Tuesday week – 12 March - was a good example. You can see that the market opened higher but finished on its lows. This is called a “blow-off” and is generally accompanied by high volume. On this day however, volume was not particularly high, which indicates there was no mad panic. A blow-off day normally happens after a long run up and is normally regarded as a bearish signal.
Why do investors buy at such times? Indeed, why have buyers been so keen over the last month? They are ‘me too’ buying. “Others are buying and I have to be in the market too”. And of course Institutional Funds are buying too as some have to follow their charter of asset allocation.
The market has had a fabulous run since November but has been range trading for the last month:
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Let’s look at Elliott:
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The above chart suggests there is a possibility that this retreat may be over. Well, maybe, but we will have to wait and see. The Oscillator has come back to zero and could fall below zero. Time will tell.
Let’s look further out:
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This suggests that the Wave Four has further to fall. Quite a bit in fact. We face a dilemma though as the Oscillator is at zero and could have more to go. Thus, we may see an Oscillator that indicates a very soft market ahead.
Now a weekly view:
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It is here that we may find our answer. This Wave Four, which is at similar lows to the Daily 300, indicates that the Oscillator still has quite a way to go.
The midpoint of this Wave Four suggests we could see the market fall back to levels not far above the beginning of the bull run. This is quite feasible as the market has gotten ahead of itself without much change in global fundamentals. The market has run up largely on perception and investors have become less risk averse. They have become comfortable with the market outlook but only because everyone else was buying in!
We could look at individual sectors and overseas indices for confirmation but this is enough to suggest that we should be very wary of this market. I think there is more easing ahead but only time will tell. If you are in the market, you must decide whether to take profits, sell down, cover positions and do housekeeping etc. based on when you bought in and your time perspective etc.
Enjoy the ride
Tom Scollon |