TA only, page-588

@Roch2077

When overseas equity markets fall, companies listed on multiple bourses are directly impacted. Similarly, related sectors (on overseas bourses) are also impacted. For example, if financials are down in NYC, chances are they will also be down when the ASX opens as global funds re-balance on a continual basis). Changes in yield(s) also has the same effect, as debt markets adjust globally every single second of the day, and this impacts PV calculations (on annuities and perpetuities, which therefore impacts equity prices). From that, when the ASX main board changes, funds managers and punters adjust their portfolios accordingly. History (data) shows that when markets are [broadly] down, money generally flows from the small boards to the main board. In other words, smaller stocks are left behind as money flows into the ASX50.

So when you see the Dow down, for example, there is a high chance that the ASX50 / SPI will open lower (more so when it is > 0.5%), making the yield on that main board more attractive to investors (if the annuity stream is unchanged for a stock but the stock price is lower, the yield rises). If the markets are down on "sentiment" this is accentuated; as opposed to when the markets are down on, say, inflation (which may stem from higher commodity / input prices). But generally speaking, a weaker close on the Dow will make small-board stocks (minnows and those outside the ASX200) struggle a bit. It doesn't necessarily mean a sell-off of those stocks, it just means that fresh money (for want of a better word: money flowing in from other sectors and investment types) will move more towards the ASX50 than towards stocks like MAY.

So its a fair point to make when you see the Dow down over 1%. It means that the "wind in the sails" may be less, and it may dampen buying sentiment, particularly in the first part of the day when portfolio adjustments are taking place.

Regards
Kit.