Long Term Perspective - Australian Market

Occasionally its worthwhile to stand back from looking at the day to day movements and look at the long term view.

Above is a chart looking back to mid-2007. Of most significance is the oblique down-trend line from late-2007.

The XAO is close to that line now. It is also significant that volatility has dropped off as the Index has approached that line.

Volatility is a mean-reverting quality. Low volatility gives way to high volatility. High volatility gives way to low volatility.

The closer the XAO draws near to that long term down trend line - the greater the probability that volatility will pick up and the Index will either bust right up through that trend line or fall away rapidly away from it. And with that increase in volatility will be an increase in volume.

The next month or so is going to provide some fireworks. :)

The trick will be to stay on the right side of the movement whichever way it goes.

I know most bears think the next big move will be down and there's plenty of them on the blogosphere.

I wonder what Dr Ben has in store?

We shall see.

Good luck

Red