Australian Share Market now “Very Bear”

2014-10-11

I have been progressing some analysis in regard to the current “Market Condition”, for use as either a filter for my existing trading models, or as a trading model in its own right.  This analysis was instigated by the work of Van Tharp, and his articles on “Understanding Market Type”.  Dr Tharp established categories of Market Type, based on a Market’s current Volatility and Direction.  In my own analysis, I have added a third dimension, based on the Market’s current Relative Real Price (see my Greed vs Fear entries).

On Friday March 11th, the Australian All Ordinaries moved to a Market Condition of:  Normalvolatility, Value relative real price, and Very Bear direction.   Just 3 days before (according to my measure) the market had been Quiet, Value, Sideways, so this change, brought about by the slowdown in China, the protests in norther Africa and the Middle East, and finally by the Japanese earthquake and Tsunami, is quite significant. 

The Australian market has spent about 1% of days over the past 25 years as Normal, Value, Very Bear, and has shown an average ‘return’ over the next 4 trading days of +0.188%.

I shall write some more on Market Condition, and shall provide updates whenever this condition changes.