InvestSMART

The Virtuous Circle

Calming markets and higher share prices are soothing fears, leading to higher investor confidence levels, which in turn sparks share buying, further calming markets and pushing share prices higher, lifting confidence further.
By · 8 Oct 2015
By ·
8 Oct 2015
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Calming markets and higher share prices are soothing fears, leading to higher investor confidence levels, which in turn sparks share buying, further calming markets and pushing share prices higher, lifting confidence further. The virtuous circle is in play, and the increasingly desperate arguments for a continuation of the bear market highlight the potential for a seller capitulation. These two factors may see “melt ups” in share markets over the coming days and weeks.

Materials stocks have finally found favour after months in the wilderness. Key factors include severely reduced share prices, stabilising commodities and potential for China data next week to back market theorists away from their economic collapse scenario. Rallies of 4-7% in BHP and Rio ADRs overnight virtually guaranteed today’s mining dominance. Energy shares are playing along after a slow start, but buying appears general, and healthcare, financial and telco stocks are also in favour.

Weaker machine orders in Japan have flattened Nikkei shares, but had little impact on the regional performance. Higher volumes across the region confirm the shift in sentiment from negative to positive. Locally, there are no major data releases, and no obvious derailer of the rally.

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Michael McCarthy
Michael McCarthy
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