Is this the correction?

[Templar42]

We've had pretty much four straight days of falling equity markets in Europe, seemingly triggered by poor US employment figures on Friday, followed by mildly disappointing data from China this week.

During the bull market that began in later autumn last year, the markets were flat or higher on news like this, and almost never experienced such prolonged falls, even at the height of the sequestration hysteria around New Year (at least as far as I remember).

Have we begun the market 'correction' that people have been talking about? If so, can we look forward to several weeks of generally falling stock markets, or, with the UK 100 at c. 6250, have we reached the extent of the pessimism, and can therefore look forward to the uptrends in major equities resuming?

Personally I think the latter, but it still seems a real possibility that the bull market might be over for at least a few weeks.

 

[DionysusToast]

Zoom out a bit - last month the ES was in the 1530-1570 range all month.

Zoom out some more, long term 40,60, 90 point ranges are pretty normal on the ES. These last for months.

Whilst I don't watch the UK markets, I don't see anything amiss on the ES myself.

 

[Purple Brain]

From a purely technical perspective the major global markets don't appear to have done anything other than correct to reasonable levels. For the UK specifically a breach down and confirmed resistance through the 6k level would be significant. For the US the DJ breaching and being below 7400 would be significant.

 

[counter_violent]

We've had pretty much four straight days of falling equity markets in Europe, seemingly triggered by poor US employment figures on Friday, followed by mildly disappointing data from China this week.

During the bull market that began in later autumn last year, the markets were flat or higher on news like this, and almost never experienced such prolonged falls, even at the height of the sequestration hysteria around New Year (at least as far as I remember).

Have we begun the market 'correction' that people have been talking about? If so, can we look forward to several weeks of generally falling stock markets, or, with the UK 100 at c. 6250, have we reached the extent of the pessimism, and can therefore look forward to the uptrends in major equities resuming?

Personally I think the latter, but it still seems a real possibility that the bull market might be over for at least a few weeks.

Stock Markets don't give up tops easily. Think about the vested interests in maintaining a bull run. The first phase of a market top would be buyers liquidating long positions. Not to be confused with sellers coming in to drive prices lower. The volatility may be back...but it goes both ways.

 

[Purple Brain]

Stock Markets don't give up tops easily. Think about the vested interests in maintaining a bull run. The first phase of a market top would be buyers liquidating long positions. Not to be confused with sellers coming in to drive prices lower. The volatility may be back...but it goes both ways.

When buyers liquidate long positions, they're sellers of long stock. When you mention sellers in the context above, I presume you mean sellers of short stock?

Surely the end result of either type of transaction is an increase of supply of the underlying and as a result, a decrease in price? If this is not the case, how does each type of player impact the market being traded and how is it possible to determine which class is active?

 

[counter_violent]

When buyers liquidate long positions, they're sellers of long stock. When you mention sellers in the context above, I presume you mean sellers of short stock?

Yes

Surely the end result of either type of transaction is an increase of supply of the underlying and as a result, a decrease in price? If this is not the case, how does each type of player impact the market being traded and how is it possible to determine which class is active?

DT and Rob are probably the guys for this question.

I have a different way of guaging what happens.

 

[Purple Brain]

DT and Rob are probably the guys for this question.

I have a different way of guaging what happens.

DT and Rob?

 

[counter_violent]

DT and Rob?

Dionysus Toast + Robster970

 

[counter_violent]

Well, i've just managed to convince myself that the US index's will run up into the close. So, long cash @ 14,600 looking for 100-130 points.

Will work the situation if I have to. May close early if no decent action on the rise.

 

[DionysusToast]

When buyers liquidate long positions, they're sellers of long stock. When you mention sellers in the context above, I presume you mean sellers of short stock?

Surely the end result of either type of transaction is an increase of supply of the underlying and as a result, a decrease in price? If this is not the case, how does each type of player impact the market being traded and how is it possible to determine which class is active?

A sell is a sell, and it'll eat buy side liquidity whatever occurs. That means short term it's bullish for price.

Long term, it depends whether the seller owned the stock or borrowed it.
It seems you already understand the concept of float. Selling borrowed stock will increase short interest. Obviously, if there are more shorts, there is less available inventory and a squeeze is possible.

You can get a delayed picture of short interest here: Short Interest Stock Short Selling Data, Shorts, Stocks: Short Squeeze A year or so back the exchanges started updating short interest in a daily basis.

So yes, it is possible to tell if it's shorting or liquidation but I've never gone to the trouble of doing it myself.

 

[Purple Brain]

A sell is a sell, and it'll eat buy side liquidity whatever occurs. That means short term it's bullish for price.

Thanks for the excellent response. Can I just query the quoted comment? Selling is bullish for price? I thought selling into excess buying liquidity can be bullish, but selling into excess sell liquidity was bearish?

 

[DionysusToast]

Thanks for the excellent response. Can I just query the quoted comment? Selling is bullish for price? I thought selling into excess buying liquidity can be bullish, but selling into excess sell liquidity was bearish?

Sorry - I had a massage today and I'm still not fully recovered from the beating I got.

I should have put bearish of course...

 

[DionysusToast]

FYI

 

[Templar42]

Zoom out a bit - last month the ES was in the 1530-1570 range all month.

Thanks, I think this is a good point. Your graph today, as you imply, suggests that the ES isn't showing signs of doing more than temporarily retracing.

Stock Markets don't give up tops easily. Think about the vested interests in maintaining a bull run.

I have to agree here too, and, given the typical length of bull markets, there would be some sense in thinking this one will last longer.

Overall, I really appreciate the responses. It seems I was somewhat hysterical myself, perhaps because I focus on the UK equity markets. I think I'll add the ES to my list of general economic indicators / news sources, as it seems to be a good barometer.

 

[Brumby]

Your graph today, as you imply, suggests that the ES isn't showing signs of doing more than temporarily retracing.

Not all retracements are of the same quality.

If the retracement in both price and time are greater than the previous comparable retracements, that portion of the trend is most likley over and with the ES that has not happened. If we see a couple more days of selling than this will be the case. In such a event, the next swing up is likely to fail and we will see a more extended sell off.