Summary for Week Ending 24th September 2005
What a long time a week can seem. Just when you think you have the markets cornered, it throws up the only scenario that you thought had the longest odds of occurring. I am of course referring to last weeks report where I mentioned that I thought that we were going to see new highs, to go with the strong finish for the week, and instead the market throws up a flat corrective pattern, something I have been mentioning for the past couple of weeks, but last week finally discounted as a possibility. When things like this happen you can only laugh and get on with it, and I've been having quite a laugh to myself this week.
Looking at every thing a little closer, what happened this week was the market simply fell out of bed with a thump. It was down from the start with two solid wide range down days and the week finished with a small rally on Friday, but this looked more like a whimper than a roar. If we look at the pattern as it stands now, the market has almost re-tested the previous swing low of 1201 and appears to be out of balance at the moment. We've had a sharp break down in a short period of time so to balance things off any further declines may be spread out a little. Most blame for last week was put on Hurricane Rita and the accompanying Oil fluctuations but it doesn't seem all that convincing to me. Reading in local Australian financial papers this weekend, there have been a number of articles on the apparent parlous state of the US economy and the level of deficit spending current occurring over there. This of course raises questions of sustainability and anything that provides uncertainty for the future is not good for the markets in the medium term.
Looking at what has happened so far, and the fact that the Hurricane thing is now over and done with (at least until the next one) then I would expect focus to go back to how much all this will cost, who's paying and what's happening to the economy as a whole in the face of a rising cost for fuel. Add to that the upcoming northern winter and the possible further stress on energy could see oil prices rise even further... and we all know what that will mean to the economy and stock prices.
Just a note regarding the concept covered in the above paragraph. You have to remember that you can work these scenarios out as to why the market should behave in a certain way, however until private knowledge becomes common knowledge these sorts of factors will be ignored. By way of an example; Can stocks continue to rise if Oil keeps rising ? The answer is: Absolutely! A rising market creates a rising market irregardless of what is happening externally so be careful not to confuse reality with the stock market... Reality and financial markets are only loosely correlated at best.
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