Perhaps chaos is slightly too strong a word for what we have experienced in global markets in the last few days. However it has caused some consternation, otherwise we would not have seen this kind of action:
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I find a bar chart is the best way to look at such action as we have seen in the last few days. Stark reality you might say. Most investors will give deeper thought when we see a sharp move – and will give overwhelmingly more when it is sharp action down. Such thoughts will cross investor’s minds – is this the end of the beginning or the beginning of the end? Is there more to come or is it time to start looking at buying in for another tilt at a new high?
The approach you will take will depend very much on where you are at. If you have been there since March 2009 then you may still want to sell down – even just a little more. If you have bought in the last few weeks and still believe in the next move higher then you may stay there and even top up. If you are out you may just like to enter a few plays.
So it is the interplay of these various thought processes that will be underlying the market action over the next few days and perhaps two to three weeks – maybe leading up to Chinese New Year. And it will be our collective assessments of where we are at in the cycle and our interpretations of what is filtered through to us by the media on such matters as Chinese bank lending, Obama speak, corporate results and economic announcements.
We have seen falls of similar magnitude in the last few months:
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And we have seen recovery eventually. If this is a rising market we will see higher highs and higher lows but if it is a falling market it could turn into lower highs and lower lows – just like the left hand side of the chart.
Enjoy the ride