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Dow Jones – is it all bad news ?

06/02/2018

In a word, no. The Dow is displaying exactly the sort of behaviour that one might expect to see. We used to refer to this chart pattern as ‘up the stairs, down the elevator shaft’. A long, slow and steady rise followed by a fall over a few trading sessions that wipes out the gains of several weeks.

While this is undoubtedly exacerbated by flash traders & program trading, this is a normal, and desirable, feature of a trending market. For a trend to continue, it has to have new buying. If everyone is already long where’s that buying going to come from ? A sharp move like this actually releases capital back into the market, setting the stage for a resurrection. It won’t be quite as dramatic, but the day-to-day fluctuations of the Stock Market don’t have much impact on the profitability of the companies that make up the Dow Jones Industrial Average. They’ll just keep on doing what they do, earning money for stockholders who have now been gifted the opportunity for some bargain-hunting.

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