Far East Capital Newsletter
Sentiment is turning neutral, so better stock selection is needed
3 Mar 2018

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Sentiment is turning neutral, so better stock selection is needed

So far this year we have had a mighty surge in January, followed by a pullback that accelerated into a serious correction, and then some sort of an incomplete recovery. The negatives in the market are emanating more from the USA, with the Dow performing worse than our All Ords and other markets. The volatility we are seeing in the US markets are consistent with what might turn out to be a drawn-out long term topping formation, but time will tell. The Australian market hasn’t experienced the same long term bull market that seemed to be going on forever in the USA, so we could be in for a period of lesser correlation between movements of the Dow and the All Ords.
The Dow fell by 10.35% at the trough of the February correction, and on the 2 March it was still down 7.9% from the record high of 26,616 seen on 26th January. Our All Ords only fell by 5% from its high of 9 January, and as of yesterday it was only down 3.5% from that peak. Thus its volatility has only been half of that of the Dow. There is a message here.
As modest as these movements may have been in the big picture, they have been enough to take the steam out of our mining market for a while. The number of stocks under chart coverage in uptrend is moving very close to equilibrium i.e. 35% in uptrend and 31% in downtrend.
The charts of a number of stocks that were previously testing uptrends deteriorated further, confirming that they are now in downtrends. Overall sentiment is becoming neutral, so you will have to be better at stock selection if you want to make money in the short term. You can’t rely on the background trend.
 

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