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Thursday, 16 October 2014

News Reports notice market fall and misinterpret

Yesterday's 3% or so drop in many indexes across the world made News Reports wake up to the fact that the markets are falling.

The Reports blame the slump on the Ebola virus and unsatisfacory reports on global economic growth. Alas, they are misinformed. These items in the news may have been an extra sitmulus to a correction that is already under way. Zero interest and Quantitive Easing pressed prices to their present unsustainable levels, from which they must fall irrespective of economic performance.

However, if the economic report continue bad, the bottom of the correction may be lower than we would otherwise expect. Well-performing economies would arrest the correction at around 1300, whereas economic bad news could do as it did in 2007-8 and send the price crashing through the long-term support line, wiping more than 50% off prices at the apex.

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