A stronger market and increasing volatility

A stronger market and increasing volatility

After surging to new highs the leading indices took a breather mid week in a classic profit taking movement. This coincided with a weaker A$ and softer oil prices. We saw profit taking throughout the junior mining sector in stocks that had recently been very strong. Thus the volatility at this end of the market is on the rise. These are all symptoms of a good market.

The challenge at this point of the market cycle is to get in step with the current psychology. The bottom fishers are all making good profits, assuming they actually did pick the bottoms and didn't come in too early. In many cases these guys go over-weight in their fishing, so they look for a chance to take some money off the table on an improving market. They provide stock for more cautious investors who wait, to buy on break outs of downtrends.

As more and more people see that the direction has turned the question becomes "when do I get in? Do I buy now, or do I wait for pullback? Will there be a pullback". Fear of falling prices is replaced by fear of missing out. That is the stage of the market cycle that we are entering now. The pendulum has swung in favour of a rising market and this will suck more buyers into the game. The search is on for fundamentals to justify the psychology, not the other way around. That is how emotional markets work.