Friday, 11 October 2013

Not the big one

So we've been caught out by the market. The market broke support and then rose again on the second day. And what a bounce. Over 300 points!

It could be because I had judged the support line incorrectly. I have drawn a second line (in blue) to show an alternative interpretation which would have picked out the bounce off the bottom almost perfectly. It is still not as good as my original orange line because it did not signal the previous retracement which the market made beginning the end of August. What it does show is that watching the market and interpreting its moods is an art, not a science.

To understand what is happening it is best to imagine the realities which these chart movements represent. Reality is just one thing: the balance between buyers and sellers. What happened yesterday is that the sellers, who've had 14 days of ascendancy with just 3 days when the buyers got a look in, lost out. Big time. On Tuesday they really did rule the roost and pushed the price way down. Then Wednesday they had a fight on their hands but they only lost by a small margin.

And then yesterday the buyers were out with a vengeance, inspired by the hope that the US Government would make a deal with its opponents in congress and and therefore would not have to default on interest payments. Once the ball had started to roll it found no resistance. The sellers were exhausted and had little appetite to sell more. So the buyers had a clear run and were probably joined by erstwhile sellers, fearful of being left behind.

Towards the end of trading more good news poured in and the market consolidated the move higher. One of the news reports I read on the compromise being thrashed out between Obama and his opponents, at the last minute, quoted Churchill: The Americans are willing to do the right thing after exhausting all the other possibilities.

It looks as though the market recovery will follow through today.

This leaves me with the dilemma: do I jump on board too. I'll have no trouble picking the shares I would want. But I will struggle picking my moment. Jumping in too soon could already be too late. Leaving it till later could make me later still.

No comments: