Yes – you will need your seat belt on – not that this big dipper ride will be all that rough – but it is precautionary – that is all that is required in this market right now – prudence not fear.
We have had seven straight weeks of gains – not enough to convince most retail investors to enter the market. With such a good run it is time for a breather – enough for the doomsayers to say “I told you so!”
If the breather does not come in the next couple of days or this week it will come soon – because that is what markets do – they move in one direction and retrace. An old hobbyhorse of mine is - these are times to re-enter the market if the retracement is sound in a market that is otherwise moving up – and this market is one of those.
The single driver for me in writing these articles is that I believe understanding the market is much easier than most people have experienced. I have seen over the years (and I have a goodly number of years behind me) so many people – friends, family and the public at large – turn their backs on the markets only to have their interest rekindled at the wrong time. I know I am repeating my theme from a previous issue – but this is the crux of winning or losing in the market. It is about timing and right now is a time to be putting the toe in the market.
There are still uncertainties in our world – some of these might be: SARS, sluggishness of the US economy, the North Korean political situation. There is already a high level of risk factored into markets for these uncertainties so unless we see some major catastrophes the markets will continue up. Markets do this all the time. War starts and the market rallies, a company announces an outstanding result and the stock goes down. To comprehend this you must think contrarian when you think markets.
Remind yourself also that when all uncertainties are removed –and when retail investors feel it is safe to enter the market that is generally when markets are about to peak!
The Australian equites market is looking stronger than others and with the strengthening Australian dollar and the relatively higher interest rates here in Australia this means there will continue to be a flow of money to our shores looking for a higher investment return. This will provide some level of underpinning for a while.
Our markets will continue up – my own view is that there is about 500 points in this rally from a low of 2666 (XAO) on March 13 (my birthday – how can I forget) to a possible high as best one can forecast at this stage of 3170. But we will see some small retracements and some large ones – with a large one being about 50% of the move up from 2666. How do we know this? There is much support for retracement theory, which I will share with you in another issue.
But before I finish a quick rundown on sectors still looking strong. These include: Energy, Banking/Finance, Industrials (be selective), Consumer Staples (be selective), Food & Bev, Insurance (strangely enough!), Hotels, Rec & Les (again strangely enough!)
So there are plenty of opportunities – be committed and you will find them