Market trends – which direction, North or South?

As I could not possibly discuss all the investment vehicles in the market, I will pick (a few) on each category for a discussion, namely Stock counters. Unit Trusts or ILPs and Leverage trading like forex, commodities, and major indices. You will need to have a chart for the discussion.

Markets could be trending Northwards, Southwards or consolidating before finding the next direction. Though volatile, there is a trend. To identify a particular trend,

·         Northwards – the highs and lows are getting higher

·         Southwards – the highs and lows are getting lower

·         Consolidation – the highs and lows is within a trending range.

Though the instrument may display volatility, you will need to take note of the trend. (Advise: once the trend is against your position, it is advisable to cut loss. Remember, the market is always there tomorrow. Live and fight the next day.)

Next, as an investor or investment advisor, you will need to know what made the market trend in that direction. The following could be some factors

·         Global investor/speculator sentiment as a result of news/fundamentals

·         Technical support and resistance of respective investment instrument

·         Monetary policies (QEs), interest rate differentials

·         Absence or presence of carry trade activities

·         Yield curves (not an exhaust list)

For e.g.

·         The start of QE1 and QE2 had a very BULLISH effect on equities and commodities. (Please note the effects of the said instrument since the launch of QE1 and QE2.)

·         QE1 and QE2 also encouraged carry trades activities (in a low volatility environment) where the main beneficiaries had been commodities (Gold, Silver) and currencies like the Aussie, Kiwi and the Loonie. (You wished you knew sooner, right?)

·         Technical & tools– In my related articles, I mentioned of Head and Shoulder formations which most likely will be trending southwards while the inverse Head and Shoulders will be trending northwards.

·         Yield curves – One of the indicators before the Lehman crisis which lead to the infamous Global Financial Crisis was the formation of Inverted Yield curves. (You may Google for a more complete definition on inverted yield curves.

From my observation, the short term trend could be

·         Equity markets will be trending Southwards – end of QE2. (There is a rumor that if the US data continues to be unfavorable and/or US markets tend to go Southwards to soon or too fast, there could be QE 2.5)

·         Commodity – precious metals like Gold and Silver (Safe haven assets) to go northwards. What contributes to uncertainty may NOT do well for equities or currencies, but Gold and Silver would be the main beneficiary.

·         Commodity – energy like crude oil to consolidate. (Economics basics; demand and Supply). Currently, global weakness will lead to lower demand. There could be volatility due to positive major indices or MENA tensions.

·         Currencies – Aussie. This is very volatile trending southwards (From a high Audusd of 1.10 thereabouts). Weakness in China/Japan, Oz financials. The NON beneficiary of unwinding carry trades.

In conclusion, I hope the above would have helped you to identify the market trend. And your knowing of the possible cause towards that trend would have helped you to identify the reversal of that trend.

The above is my personal opinion where the market would be trending. The above is NOT an offer or advice. Please consult with your advisor/consultant before deciding your investment strategy.