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All Ords: Is there an explanation for this behaviour?

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56gsa

56gsa

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Hi all

I have attached a graph of the All Ords index - with the bottoms of Nov 1987 (orange line) aligned with post-2007 (ie Feb 2009) aligned. It's remarkable the pattern we see of the index post these two bottoms and how similar they are. The major exception being early 2012 (which is compared with late 1990)

While historical data is not a predictor etc etc - does anyone have suggestions for why the pattern is so similar?

I am thinking along the lines that both were a result of credit contraction and this works its way through the economy / business cycle in a similar manner.

Any thoughts?
 

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I've seen similar analysis done on overseas markets with very similar results, so it's not a situation that's unique to the ASX.

I'd assume that the business cycle and human psychology would both be major factors in it.
 
56gsa said:
Hi all

I have attached a graph of the All Ords index - with the bottoms of Nov 1987 (orange line) aligned with post-2007 (ie Feb 2009) aligned. It's remarkable the pattern we see of the index post these two bottoms and how similar they are. The major exception being early 2012 (which is compared with late 1990)

While historical data is not a predictor etc etc - does anyone have suggestions for why the pattern is so similar?

I am thinking along the lines that both were a result of credit contraction and this works its way through the economy / business cycle in a similar manner.

Any thoughts?
Click to expand...

Fear and greed follow patterns.

Younger traders come up without remembering the devastating lows.

It's a cyclical event.

Enjoy.

gg
 
56gsa said:
Hi all

I have attached a graph of the All Ords index - with the bottoms of Nov 1987 (orange line) aligned with post-2007 (ie Feb 2009) aligned. It's remarkable the pattern we see of the index post these two bottoms and how similar they are. The major exception being early 2012 (which is compared with late 1990)

While historical data is not a predictor etc etc - does anyone have suggestions for why the pattern is so similar?

I am thinking along the lines that both were a result of credit contraction and this works its way through the economy / business cycle in a similar manner.

Any thoughts?
Click to expand...

I believe that it has a lot to do with people analysing historical charts (in their efforts to find a profitable edge) and then trading with the expectation of history repeating (or at least rhyming) thereby fulfilling their own (self created) prophecies.
 
Personally think it's a representation of mindsets
During periods of
(1) Doom and gloom
(2) Uncertainty
(3) Cautious optimism.

Not shown but will become present at sometime
Unbridled positive sentiment.

You see it in indexes and in stock charts in all
Sorts of timeframes.
Infact I've trade of individual bars which represent
An over reaction in one or more of he emotions
Displayed on a chart.

Charts tell stories of perceived value AND the reaction of that valuation by the market in general.
While it maybe fundamental causation there is a technical record captured on charts.
 
One investment strategy to consider given that this pattern from doom to unbridled optimism will repeat itself into the future to a greater and lesser extent is to buy into the gloom and sell or hold into the unbridled optimism. All that is required is the two rare traits of patience and conviction. The results should be enhanced if the better quality businesses are purchased.
 
The initial push up from the lows is a reversion to the mean, and following a huge drop, one can expect the 50% retrace to happen in a fairly uninterrupted fashion. It did in both cases, followed by a reversal to downtrend almost immediately the 50% was reached. So that explains the first two significant moves but after that I don't really know. As smurf says, psychology is what drives market participants (desire for money and fear of losing it), and you can bet heavily on human nature being a constant, so it would make sense that the pattern would look the same. But I hadn't noticed this before you brought it up.

56gsa, I reckon you will find your answers in Elliot wave theory. Someone might post a chart of that. If the pattern holds true, we're due for a big fall.
 
Gringotts Bank said:
The initial push up from the lows is a reversion to the mean, and following a huge drop, one can expect the 50% retrace to happen in a fairly uninterrupted fashion. It did in both cases, followed by a reversal to downtrend almost immediately the 50% was reached. So that explains the first two significant moves but after that I don't really know. As smurf says, psychology is what drives market participants (desire for money and fear of losing it), and you can bet heavily on human nature being a constant, so it would make sense that the pattern would look the same. But I hadn't noticed this before you brought it up.

56gsa, I reckon you will find your answers in Elliot wave theory. Someone might post a chart of that. If the pattern holds true, we're due for a big fall.
Click to expand...

We are incredibly close to the circa 5,400 level on the XAO which roughly represents the 61.8% fibonacci retracement level from the GFC bust.

The major bottom of the cycle is March 2009 at 3052.5 but the last major bottom was 3829.4 in August 2011. So we can expect the XAO to trade somewhere between 3829 and 6873 over the next couple of years. That's my prediction.
 
tinhat said:
We are incredibly close to the circa 5,400 level on the XAO which roughly represents the 61.8% fibonacci retracement level from the GFC bust.

The major bottom of the cycle is March 2009 at 3052.5 but the last major bottom was 3829.4 in August 2011. So we can expect the XAO to trade somewhere between 3829 and 6873 over the next couple of years. That's my prediction.
Click to expand...

Finally a prediction I'm reasonably comfortable with. The trick is to work out how to to profit either way.
 
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