So if the S&P weakened, will that affect the DOW and in turn the XAO? Yes most likely – there is without doubt a domino effect phenomena evident in the markets. So maybe the S&P is the first one to crack or maybe the third option takes hold. That is, the markets track sideways until there is reason to push them higher or lower. For them to go higher there will need to be overwhelming good economic news which seems most unlikely in the near weeks and months as so much good news has been factored in.
One can only observe the trading pattern – not fight it – but at least be aware of what are the more probable scenarios. From my own trading perspective I am inclined to think there will be some element of range trading with a tendency to the downside. In the back of the minds of most Americans is the dreaded thought that September is traditionally a freaky month and whilst they will be happy to see the back end of the month there is still that lurking possibility that this year the “X” factor has been held at bay – but maybe only for a while.
Even with the market indecision there will still be good opportunities, so my strategy will be to “selectively” buy shares in the Australian market and to hedge using options in the USA. That way I feel much more secure than when I used to depend solely on buying shares and being helpless when the markets were going in the two directions I did not want – sideways or downwards. Being master of my own destiny is important to me!
Enjoy the ride.