Like many aspects of life, stock markets have patterns. These patterns allow for a quick check as to how the markets are performing against previous benchmarks. We are now close to the end of May where the markets have traditionally have taken a breather and many are waiting to see if the "sell in May and go away" cliché holds true.
In 2003 the markets lowed in March and ran up for 10 weeks before taking a breather, that breather meant in technical terms that the uptrend was changed to uncertain when using a swing chart. This change in trend made the market movement uncertain but it took many more months before the trend took any serious turns to the downside.
The current scenario that we see in the market is a strong low in March followed by a pause in the rally in May. For those who know the concept of measuring a retracement in the market we look to measure the percentage a market comes back in comparison to how far it has run.
Comparing the current market back to 2003 the patterns are quite similar with the market making a high in May and the sell off running back 33%. So where does this analysis lead us to? Simply we can expect the market based on the last major bull charge to retrace to around the 3700 level and then if history repeats, the market will find its feet and continue the positive returns since March. If the key levels around 3700 cannot be held then the ASX 200 could be looking at moving lower as investors retreat in May.
The key to any continuation or reversal in the market is as always watching the level of shares traded or the overall volumes of the market. To date in 2009 the market has had a jump in regular volume and has held these levels even as the market has come off the boil.
As the market continues to sell off watching how volumes increase and decrease will be a key to understanding if this is just the market rebalancing for higher levels or as many are thinking the chance to retest the lows that were made earlier this year. Now is an excellent time to have a plan with your shares if the market was to come back again.
To add one more part to the always challenging puzzle the regulators have seen fit to lift the final bans on short selling with regards to financial stocks. Now will be a real test for this important sector to see if it can hold value and attract buyers or if shorting the price becomes the norm again.
Good trading.
Source: www.yahoo.com.au
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