The Power of Sentiment: How analysis could be affected

(Note: This post has been originally written on Sep 30 but added later on Oct 16)

I used to see the market more challenging when market-moving factors become more psychological than fundamental. But recent days showed that such a psychological environment could have at least one advantage by eliminating many factors which in a normal condition should be entirely taken into account.

On Sep 29, everything was based on fear; first because of uncertainty before the House vote on the rescue plan, and second by a sever disappointment from the surprise rejection which finally cost the major indexes more than 7 percent.

And today, Sep 30, it was just optimism from revived efforts by the Congress' members and the U.S. President who are trying to make the market confident that the bill will be eventually passed. And it was when a 3.5 percent decline in Japan industrial production and a 16.3 percent decline in the U.S. house prices – reported by the S&P/Case-Schiller – were unable to prevent the market from a more than 3 percent advance.

Following charts could show that how specific the situation is:
• The prices of oil and gold are highly decoupled (and between Euro and oil as well)
• Oil and USDJPY rise and fall in the same direction (reflecting less effect from oil on the dollar)
• It is also worth to see that the market still react strongly to simple technical patterns