Most traders who are bearish on markets at the moment have
had a hard time of late. As world and more significantly U.S indices creep up
slowly to all new time highs, the bears look to have come out of hibernation
prematurely.
However last week it was reported that the Portuguese bank,
Banco Espirito Santo had failed to repay
short term debt it had made and sent traders into a frenzy leading the market downwards for what was thought to
be a start of a deeper correction.
Nevertheless the market decided otherwise and seemingly
reversed its direction and now heading back towards all-time high which begs
the question, is there any rationality in the markets?
What the recent selloff might suggest to us is that traders
and investors alike are waiting for the right catalyst to initiate a departure
from overpriced stocks and trap in the value they have created over the last
bull rally, allowing for better valuations to come through.
It is uncertain what the catalyst may be but we know that
participants may start reviving negative themes from the past and make them
appear as new issues. I say this with
reason because European debt problems have never gone away, it has been
floating in the back of our minds while markets continuously soar to new
levels.
The U.S economy remains weak when compared to the amount of
stimulus financial markets have received over the last few years, yet it
doesn’t seem as if the world economy is in a better place today than what it
was a year ago.
If the selloff last week could teach us something it’s that
participants are more willing to press the sell button in a gasp of panic than
they are to euphorically buy up more stock. The lack of volatility over recent months has
resulted in sideway choppy price action which has made trading extremely
difficult.
Price action to the
upside isn’t producing the desired conviction it once did a few months ago with
the moves gradually moving higher with a stop start pace about them which in
turn is making it very difficult to see any technical formations on the higher
timeframe charts.
Taking this into account one could assume that the markets
at present is bouncing around in a non-directional manner as a result of many
refusing to buy in at lofty levels, added together with news events which lack
enough substance to drawdown the market sufficient enough to validate the start
of a corrective phase.
Current market conditions
may only resolve itself if enough time is allowed to lapse so volatility may
return. We have seen a spike in volatility on the shorter timeframes but longer
timeframes still seem to be stuck in low volatility environments and we would
need to see a build-up of it before we get excited.
I also believe that
when we do begin to see increasing volatility again it will be violent and
abrupt so as to shake out misplaced views on the market. Until then the best way to deal with it is to
take it day by day. Stay attentive of
the news flows coming out, watch for any abnormal price action which breaks
through major supports and lastly guard your capital as if your life depended
on it.
If you would like to contact me you can through my email at cadetrader@gmail.com or if you wish to
follow me on twitter and get the latest updates of news, interesting commentary
and general trends in the market, my twitter handle is @CadeTradeR if you
follow this link it’ll take you directly to my twitter timeline: https://twitter.com/CadeTradeR
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