Chief Editor
The Dow has been bound between 9000 and 9300 – give or take – for almost two months now hitting a low of 8999 during the week. It has been feigning a continuing rally, which so far has been thwarted. For the rally to be validly resumed it needs to pass the 9300 mark convincingly. If it fails to do that, it is more likely that it will retest the 9000 level with a fair chance it might drop below 9000.

The S&P and NASDAQ reveal a very different pattern and both have markedly retraced – without fanfare – since their peak in mid July. Both are stepping out a classical Elliot Wave four retracement. The extent of that retracement – when complete - will give us a notion of where wave five might be. Generally, other major international equity markets are following a similar pattern to these two markets but with the DOW and All Ordinaries being exceptions and showing a great deal of resilience especially the Australian market.

When the markets do eventually consolidate, there are vast amounts of cash in western capital markets waiting to find a home and it looks likely that equities will be the favoured nesting place. Thus, buyers over the last few months have become reluctant to sell and take profits with the fear that it will not be so easy to buy back in for another cruisy ride as experienced over the last few months.

This view is supported by the option put:call ratio for all USA Option Exchanges which has been >.80 August to date, compared with .68 daily average for July so there is a weight of money betting this market has more to go. Further analysis would reveal more about “when and what” might happen between now and the top.

Mike Lawch’s article this week on covered writes, is perfect timing for those who might want to protect capital gains from the last few months.

So until the markets sort themselves out your editor is going to take a well earnt break (in his view) on Hamilton Island – but with laptop in toe, as he won’t risk missing even a modicum of market action over the coming week!

Tom Scollon