Tom Scollon
Tom Scollon
Chief Editor

Banking executives, fund managers, investors, retirees watched a little nervously early this week as the short selling ban on Australian local banks was lifted. Was an avalanche about to happen?

Not really but that does not mean they are out of the woods yet though. Take a look at my trusty Elliott Wave chart in ProfitSource for the Finance sector which makes up over 40% of the total market and is in turn made up of mainly the ‘pillar of four’.

click chart for more detail
click to enlarge

You will note banks have gone no-where in the last two months. Is it possible they are overbought? Markets range trade when there is much indecision. Sellers and buyers are in balance. Maybe both are unsure or do not have the courage to force the market one way or the other as to do so you must go out on a limb. So both hold back until a clearer view develops and then the market breaks one way or the other.

Well I am going to go out on a limb and say that I think the index will break down. Is that being negative? Most definitely not. There are many silver linings but I can see to that dark cloud.

Firstly it will be great to get the final capitulation out of the way. This is good as it will put an end to the ‘death by a thousand cuts’ as for many, who can do nothing in bear or range trading markets, such times can be helplessly painful.

For the traders this is an opportunity to get in for the last slide and some easy fast money for the next move to the downside. Get ready traders.

And for the long term fundamental investors this could be the time to get set – possibly ‘once in a generation’ type buys.

So perhaps here is a time when there is something for everyone.

But I must always ask myself ‘what if I am wrong’. If I am wrong my belief is that it will be more in the extent of the retracement and not whether the market will retrace or not.

Enjoy the ride

Tom Scollon
Chief Analyst