Thursday, 15 February 2018

Market Trends (Evaluating Past Crisis)

MARKET TRENDS (13th Feb 18)
Important Economic Announcements for the week:
Tues: GBP CPI 5.30 pm
Wed: Euro GDP 6 pm US Retail Sales and CPI 9.30 pm
Thurs: Aud Unemployment Rate 9.30 am
The markets have been more volatile than I have expected as Dow is going through trading days in 1000 points range. Algo Trading has been highlighted as one of the culprits. Nonetheless, the big picture seems to me to be still one of a well-deserved correction and the underlying trend is still up. However, we should expect the volatility to persist through this consolidation stage. In this write-up, I have pulled out a few charts and did an analysis of how past crisis can affect the markets. Hopefully, it will give us some insights on the next likely course of direction for the equity markets ahead.
 Source: STI Chart from YahooFinance as of 12/2/18
Source: Dow Jones Chart from IT Finance as of 12/2/18
Source: Nasdaq Chart from IT Finance as of 12/2/18
From the charts, we could see that the US markets have been weathering the crisis better than the STI as their magnitude of falls is usually less severe. We could see that the falls for the not too severe crisis are around the magnitude of 15 to 20 percent. For severe crisis, we are looking at around 50 to 60 percent falls. You could also note that the recent crisis has usually lasted a year in correction mode with the exception of the post 9/11 that coupled with Dot Com crash which lasted for around 2 years or so.
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