MARKETS SPECTATOR: What happens when headlines go quiet

A quiet day on the exchange does not necessarily mean nothing interesting is happening. In fact, rising markets are more likely to be considered boring.

As we predicted this morning, it’s been a pretty quiet session on the ASX as a lack of news flow failed to create the heightened environment we witnessed last week.

In early afternoon trade, the benchmark S&P/ASX 200 is 0.5 per cent firmer at 4418, well off morning lows of 4386.

However, the lack of eye-catching headlines doesn’t mean nothing is happening. In fact, rising markets are more likely to be considered boring, especially when compared to the sheer panic and fear of a rampant bear market.

Ever since the beginning of the GFC markets and participants have become used to headline-driven volatility. The world was on the brink of financial armageddon more times than not as super-data weeks came and went.

That’s just what financial markets have become used too but it’s certainly not the long-term norm. Perhaps, and hopefully, we are starting to get back towards more normal markets, markets where there are only a few big headlines each month and they don’t even create that much volatility.

Rather than headlines instantly telling us what’s going on, we’ve got to look a bit harder to understand the forces at play. Whether you agree with it or not, many global markets are at or very near multi-year highs. This paints a clear picture; current demand is outweighing supply or in simpler terms, there are more buyers than sellers.

Many market participants get caught up in what they think markets should, would or could be doing rather than actually focusing on what they are doing. So what’s happening in the Australian market? Since the lows of May this year, the index has been making higher lows and higher highs, which is the textbook definition of an uptrend. However, as has been well noted, the benchmark index has been stuck in a broad range of approximately 4000 to 4450 for the best part of a year now. It is now approaching the top of this range and should make a third attempt to break out in the coming days or weeks.

The million dollar question is whether or not it will be successful? Given the backdrop of global stimulus, the strong performance of global equity markets and the recent break-out of the heavily weighted materials sector, it looks to have every chance of succeeding this time. Only time will tell.

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