Articles for: Elliott Analysis

Well it almost seemed that the hot headline of interest rates would disappear from the daily press. But like it or not the theme is going to be much debated in the coming months.

Some may think I am obsessed with retracements. But I must persist as it is primary to understanding price movement. Just as markets retrace down when a market rises they also retrace up when the market is falling – this is part of the confusion and uncertainty as the tide changes.

What a dream run the markets have had over recent months - but unfortunately for the time being the easy paper profits are over. At the top of each market rally, confusion sets in - mixed feelings creep in to the market''''''''s psyche and equity sectors react in varying ways to the news around them.

The predictable 0.25% interest rate creep announced last Wednesday hit a number of sectors, notably the Banks, Retail, Building Materials and Infrastructure. The sulking response was surprising given that the expectations were so overwhelming for an increase – the only surprise was maybe that it was a month early.

The markets moved higher – “move” being something of a slightly dull term. The markets showed that maybe from here it is going to be something of a crawl to the top wherever that might be, but increasingly the experts are saying that is not far away. Who knows? Although the number of pundits who claim the market is overvalued is now gaining in number. And this is confirmed technically as many markets start off the day with energy only to fade as the day closes – a sure sign of caution and indecision.

The Nikkei 225, the Japanese stock market key index, has risen almost 40% since its low of 2003 compared with the Australian market which has risen over 20% - a somewhat more cautious increase. The Nikkei started its run up over a month later - in April when it sat at its all time low of 7670 – compared to a high of almost 40,000 in the late 80’s!

For a while there it looked like “all our Christmases had come at once” with many thinking making money this way is just too easy. Apart from the fact I have laboured the point about retracements over the last several weeks there is in fact seasonality to retracements in many markets.

Some investors picked this stock market run up as early as March, some have picked it up over the last few weeks, some have just got in recently and are now wondering whether they should bail out and lastly there is the group that have remained on the sidelines. And I guess there are probably many investors that fit into almost all categories.

The last week again showed continuing momentum but despite the good news on the US reporting front, stocks did not match that with a surge of buying as much of the good news has been factored in. This could be a case of "buy the news sell the reality.” Indices volume is now starting to lag and this can also be seen in individual stocks both here in OZ and in the US. It’s called taking a breather – which is good to see. With the market having achieved such gains the propensity for further upside for the medium term, is abating as investors become more cautious.

So you might ask what is the Caviar Index – it is simply a measure of the good times. When times are good – or we perceive them to be - then we start to live like lords again. We dine out more – at better restaurants – luxury car showrooms become busier and so and so on. Based on Australian economic data we supposedly have been living off a green paddock with rich pickings over the last few years – better than most in the western world at least. But yet few people would proclaim that these have been years of milk and honey and in fact on the contrary it has sort of been hard going some would say.