No explanation required

By Colin Twiggs
October 26, 2018 3:00 a.m. EDT (6:00 p.m. AEST)

First, please read the Disclaimer.

In the past week, I have seen a number of market commentators attempting to explain the current correction. Reasons given vary from rising interest rates, Fed shrinking its balance sheet, the impact of trade tariffs on manufacturing input costs and inflation, and peak growth in earnings.

Truth is, there is no single reason that could justify the dramatic market falls. Some of the reasons cited are insufficient while others are invalid. But no explanation is necessary. Market sentiment has simply shifted. The scale has tipped and more investors are taking profits than new money coming into the market. When that happens, prices fall. And falling prices become a self-fulfilling prophecy, scaring off new investors and panicking investors with a short-term outlook.

How long this will go on for, I cannot tell. But I am sure there are growing numbers of long-term investors picking through the debris looking for opportunities. And the greater the fall, the greater the opportunity.

Earlier in the week I cited Netflix (NFLX) as one such example. Price has fallen almost 20% in October 2018, while recently released earnings announced a 34% year-on-year increase in revenue for the third quarter and a 130% increase in operating income.

Patience is required but opportunities abound.

East to West

A quick recap of markets.

China's Shanghai Composite Index is in a primary down-trend, having broken primary support at 2650, but rising troughs on the Trend Index warn of strong support. I suspect this is government-orchestrated as investors have little reason for optimism.

India's Nifty is testing primary support at 10,000.

Europe is in a primary down-trend, with the DJ Euro Stoxx 600 respecting its former primary support level at 365/366.

The Footsie is testing primary support at 6900/7000.

Dow Jones Industrial Average is undergoing a strong correction. Bearish divergence on the Trend Index warns of a reversal but only breach of primary support at 23,500, completing a double-top, would confirm.

Dow Jones Transportation Average is already testing primary support at 10,000. Reversal signals on both averages would confirm a bear market according to Dow Theory.

But technology stocks play a far larger role than in Charles Dow's day, more than a hundred years ago. The Nasdaq 100 is still a long way above primary support at 6,300. Bearish divergence on Money Flow warns of selling pressure, but only breach of primary support would confirm a bear market.

The only thing we have to fear is fear itself.

~ Franklin D. Roosevelt, 1933 inaugural address

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Disclaimer

Colin Twiggs is director of The Patient Investor Pty Ltd, an Authorised Representative (no. 1256439) of MoneySherpa Pty Limited which holds Australian Financial Services Licence No. 451289.

Everything contained in this web site, related newsletters, training videos and training courses (collectively referred to as the "Material") has been written for the purpose of teaching analysis, trading and investment techniques. The Material neither purports to be, nor is it intended to be, advice to trade or to invest in any financial instrument, or class of financial instruments, or to use any particular methods of trading or investing.

Advice in the Material is provided for the general information of readers and viewers (collectively referred to as "Readers") and does not have regard to any particular person's investment objectives, financial situation or needs. Accordingly, no Reader should act on the basis of any information in the Material without properly considering its applicability to their financial circumstances. If not properly qualified to do this for themselves, Readers should seek professional advice.

Investing and trading involves risk of loss. Past results are not necessarily indicative of future results.

The decision to invest or trade is for the Reader alone. We expressly disclaim all and any liability to any person, with respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance upon the whole or any part of the Material.

Please read the Financial Services Guide.

	No explanation required By Colin Twiggs October 26, 2018 3:00 a.m. EDT (6:00 p.m. AEST) First, please read the Disclaimer. In the past week, I have seen a number of market commentators attempting to explain the current correction. Reasons given vary from rising interest rates, Fed shrinking its balance sheet, the impact of trade tariffs on manufacturing input costs and inflation, and peak growth in earnings. Truth is, there is no single reason that could justify the dramatic market falls. Some of the reasons cited are insufficient while others are invalid. But no explanation is necessary. Market sentiment has simply shifted. The scale has tipped and more investors are taking profits than new money coming into the market. When that happens, prices fall. And falling prices become a self-fulfilling prophecy, scaring off new investors and panicking investors with a short-term outlook. How long this will go on for, I cannot tell. But I am sure there are growing numbers of long-term investors picking through the debris looking for opportunities. And the greater the fall, the greater the opportunity. Earlier in the week I cited Netflix (NFLX) as one such example. Price has fallen almost 20% in October 2018, while recently released earnings announced a 34% year-on-year increase in revenue for the third quarter and a 130% increase in operating income. Patience is required but opportunities abound. East to West A quick recap of markets. China's Shanghai Composite Index is in a primary down-trend, having broken primary support at 2650, but rising troughs on the Trend Index warn of strong support. I suspect this is government-orchestrated as investors have little reason for optimism. India's Nifty is testing primary support at 10,000. Europe is in a primary down-trend, with the DJ Euro Stoxx 600 respecting its former primary support level at 365/366. The Footsie is testing primary support at 6900/7000. Dow Jones Industrial Average is undergoing a strong correction. Bearish divergence on the Trend Index warns of a reversal but only breach of primary support at 23,500, completing a double-top, would confirm. Dow Jones Transportation Average is already testing primary support at 10,000. Reversal signals on both averages would confirm a bear market according to Dow Theory. But technology stocks play a far larger role than in Charles Dow's day, more than a hundred years ago. The Nasdaq 100 is still a long way above primary support at 6,300. Bearish divergence on Money Flow warns of selling pressure, but only breach of primary support would confirm a bear market. The only thing we have to fear is fear itself. ~ Franklin D. Roosevelt, 1933 inaugural address Latest Investing (video) Why you shouldn't panic when stocks are getting slammed. ASX 200 At primary support. Gold Bear rally expected to falter as Dollar strengthens. Interest Rates & Inflation President Trump should look in the mirror. Bonds How will a bond bear market affect stocks? Yield Curve Does the yield curve warn of a recession? Disclaimer Colin Twiggs is director of The Patient Investor Pty Ltd, an Authorised Representative (no. 1256439) of MoneySherpa Pty Limited which holds Australian Financial Services Licence No. 451289. Everything contained in this web site, related newsletters, training videos and training courses (collectively referred to as the "Material") has been written for the purpose of teaching analysis, trading and investment techniques. The Material neither purports to be, nor is it intended to be, advice to trade or to invest in any financial instrument, or class of financial instruments, or to use any particular methods of trading or investing. Advice in the Material is provided for the general information of readers and viewers (collectively referred to as "Readers") and does not have regard to any particular person's investment objectives, financial situation or needs. Accordingly, no Reader should act on the basis of any information in the Material without properly considering its applicability to their financial circumstances. If not properly qualified to do this for themselves, Readers should seek professional advice. Investing and trading involves risk of loss. Past results are not necessarily indicative of future results. The decision to invest or trade is for the Reader alone. We expressly disclaim all and any liability to any person, with respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance upon the whole or any part of the Material. Please read the Financial Services Guide.	Share: A+ A− Incredible Charts 10.1 Windows software with proprietary trading tools and stock screens. Download 5-Day Free Trial Try it Now! Incredible Charts 11.0 Proprietary trading tools and stock screens now in your browser. Free Trial 30-Day Free Trial Try it Now! Trading Diary Free education, macro outlook and technical updates: Join Now
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