Yesterday I read with interest a comment made by an Australian market analyst the market would fall. Over the last month or so the US market has been falling. The Australian market closely follows the US and our market has been falling too. It seems that analyst is certainly living in the present moment!
Below is a chart of the US SP500, arguably one of the best stock market barometers globally. This index represents the top 500 companies in the US. I know some people hate charts and switch off immediately, so I have attempted to make it as simple as possible. The chart below displays the price over the last 3 years accompanied by a volume indicator called On Balance Volume. (OBV)
Analysing charts is subjective, it’s difficult to put aside ones inherent bias, so I am going to make some assumptions here as I view the chart.
1/ that a price is trending if it is moving from the left hand bottom corner of the chart to the right top corner, the price is doing that.
2/ that for prices to rise they need buying support, if buyers fall away so does price. The OBV is still rising suggesting sellers are not committed.
3/ from February to August this year the price of the SP500 rose sharply. Markets go up and down and market participants look for reasons to buy and sell, concern over the US election was the catalyst it needed to sell from an over bought area.
4/ now this last point will get the technical analysts excited or argumentative, some of you will be bored stiff. There is a positive divergence between volume and price, as the price has fallen the indicator is not falling with it, in fact it is rising, suggesting the recent sell off could be over done.
If your keen you can read more about OBV from a link at the bottom of the page.
Conclusion: this market is trending up, it may be volatile but let's face it, the US has not been the most stable place lately has it? Nor is the world. Buyers do not seem to be deserting the ship yet, so perhaps the talk of it sinking is premature. Trends tend to prevail and looking at the chart above this looks like a normal pullback in a nervous market. The world is nervous, as investors and traders we need to constantly remind ourselves of this, attempt to stay detached from the news, and find a clearer source of information.
As to the US election no one knows what will happen and how it will affect the markets. The reaction may be ho hum or incredibly volatile. One thing I am certain of, once it's over market participants will start to worry about the next thing!
I constantly say that the ultimate indicator is price, (which is still trending up) the OBV could be totally misleading, as it is not a prophecy of rising prices, however it does give us an alternative analysis rather then predictions or focusing on a worst case scenario.
Peters Portfolio has taken a hit with the downturn. However in 2.5 years it is still up 58% compared to the Australian market down minus 4.5% . So the score is Pete +58/ Market -4.5
Looks like an All Black score doesnt it? No I am not a Kiwi but I give credit where it's due. Feeling inspired after watching the fabulous documentary about Richie McCaw, I have included his quote below.
"Sometimes the worst experiences are where you learn the most lessons"