The Aussie market has corrected by close to 6% since 1 September. Day by day, we’re heading closer to a 10% correction.
And thanks to worried comments by European Central Bank (ECB) President, Mario Draghi, the Dow Jones fell by 334 points, or 2.0% last night. That doesn’t bode well for the Aussie market today, which is already down 2%.
I hope that you’ve been able to sleep at night.
This market volatility has been psychologically damaging! It’s up one day and down the next. Then down again the day after.
And to make matters worse, volatility will only rise from here. I’d stock up on your heart tablets now!
Free Reports:
If you haven’t been sleeping, you’ll want to hear this. I’ve got some good news for you that should bring you peace of mind.
We’re in the midst of a multi-year bull market! And this bull market will climb much higher next year.
If you’re a Diggers and Drillers reader, you’ll be very familiar by now with why the market is bullish. It’s got everything to do with the macro-economic environment. I wrote about this extensively to my readers this week.
I also gave them important fundamental and technical analysis on gold and silver. Get ready to see gold fall to US$931 per ounce next year. It’s about to fall off a cliff any day now. Although I won’t provide the price targets here, silver will follow gold’s footsteps and has even further to fall.
With that said, this market isn’t surprising in the slightest. I’ve said for a while that the stock market correction would stretch from week one of September well into October.
Right now, we are going through a rocky ‘consolidation’ phase before the big break out.
What I said to you in last Friday’s Money Morning still stands: we are in a history making bull market.
For months, I’ve detailed to Diggers and Drillers readers why Europe’s economy and financial system is a basket case — France, Greece, Italy, Spain will all default on their debts. Europe is in a massive deflationary environment. And this isn’t good for European investments. Mario Draghi’s comments last night prove this point.
It’s clear that money is moving out of Europe — look at the euro/ US dollar currency pair. The US dollar is only getting stronger against the euro. This means that money is flowing out of Europe and into the US. Investors want nothing to do with Europe…and rightly so.
The US stock market may not see a correction. When the US stock market runs hard again, the ASX should follow.
November is when the 2015 bull market will begin. This is after the US Federal Reserve’s money printing program will have stopped. Investors will see that the market is still going up, and will start buying again.
Now let’s take a look at the technical picture. The chart below tracks the Dow Jones Industrial Index. Each bar represents one week.
The chart shows you that the Dow Jones has been in a strong bullish uptrend since 2011. 2011 was the last time the Dow Jones corrected by more than 10%. This is why I called for a correction in the US stock market.
However, my confidence on the US market correcting is no longer as high. Based on my updated analysis, there’s now a 20% chance of a correction in the US. That’s down from my estimate of 25% last week. But a 20% possibility of a correction still shouldn’t be ignored.
Right now the branches are shaking, knocking off the weak investors from the market. When the market has been so hot for so long, it needs a cool down period. This is what you’re seeing right now.
If a US correction shows no sign of coming, a bullish burst will happen before you can blink.
If the market does correct, then you need to look at the red support lines on the above chart. These support lines exist at 16,028 and 16,468 points. I’d suspect that the market will at least bounce off 16,468 points before transitioning into the next phase of this bull market.
For the next phase of the bull market to truly begin, look for a multi-hundred point bounce off the 17,000 support level. This is the bullish sign that equities need to rally hard. The market is currently trading at 16,659.25 points.
When it comes to the Aussie market, it’s unlikely to rally higher until the US takes the lead. We are still at risk of seeing the ASX 200 revisiting the 4,993-5,072 point support range. This is a major support and resistance level dating back to 2009, 2011, and 2013. Re-testing this region would represent a 9.9–11.3% correction from the start of September.
The bottom line is: forget about the day to day volatility in the US stock market.
And hold onto your bulls, because the market is just about ready to take off.
Jason Stevenson+
Resources Analyst, Diggers and Drillers
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