Tom Scollon

When markets fall back we never quite know where they may finish – where their retreat may end.  We don’t know whether this is a major retreat or merely a minor pullback or a dip.  Over the years in Trading Tutors I have written many times about what is the difference between a retreat and a dip or pullback or a reversal.  You may care to revisit for a ‘refresher’

We do not have ‘20/20’ vision so we don’t know what is ahead.  Sometimes we can sense this is only a harmless dip or small retreat and other times we might fear the worst but the worst does not happen as we anticipated.

So we don’t know if it will be an orderly or even predictable retreat or whether it could be at first benign but then something really nasty is looming.  Just like in so many other aspects of life.

So is this current ‘unease’ merely order playing out or is it something more sinister?  Let’s look at the charts:

XAO Daily

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XAO Weekly:

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Note that both charts have an oscillator which is a useful indicator to try and aid us in assessing whether retreats are benign or not.  It aids us but as with many life issues such as medical diagnosis there are no guarantees.  We are therefore more concerned about probabilities.

The daily oscillator indicates that the market is unlikely to recover from here.  That is in the daily context.  So we then focus on the weekly chart and there seems at this point a reasonable probability of an orderly retreat taking place.  But as you know with weekly charts it takes more time and it could be another 2-4 weeks before we get enough data to give us a sense of confidence.

If the oscillator goes significantly below zero as we have seen with the daily chart then we would need to turn to the Monthly chart:

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But that could take a couple of years to unfold!

For many reasons we have become used to markets trending strongly – up or down.  There have been few extended periods in the last couple of decades when markets have range traded for an extended period.  That is still an option but does not seem that likely for now.

But we assume nothing.  So it is always advisable to do regular housekeeping – cleaning out stocks that do not meet our criteria.  That will not protect you if there is an overnight disaster but it will help to minimise damage.

Enjoy the ride

Tom Scollon