Wealth Within - All Ords Report 7 October 2008
Over the past week I have revisited a number of major events that occurred on our market in the past decade including the tech wreck, the Asia crisis and Sep 11 to name a few. Interestingly, the headlines in the newspapers during these periods are no different to what is being published today. Take for example the article published in the Herald Sun on 21 July 2002, where the headline read “ Wall street plunges as panic replaces fear”. The content of the article could almost replicate the current events in the market today.
Why do I mention this?
Because all markets are cyclical and every 4 to 5 years markets will fall by at least 20%. The unfortunate side to this is that while ‘headlines’ sell papers, the uneducated investor is spooked by such movements in the market rather than understanding that these moves are to be expected as they are simply a normal process of market cycles. It is for this reason why I strongly recommend investors educate themselves to understand how markets unfold so they can be better prepared in the future.
So what can we expect in the market?
Over the past week the All Ordinaries Index has fallen heavily again firstly following the rejection of the $700bn rescue package by the House of Representative in the US, and again after the rescue package was approved. While the package has some merit, I strongly believe the US government is simply putting a bandaid on the titanic. In my opinion more needs to done to ensure that economic stability is restored in the US.
As I mentioned above the market is cyclical and it is with uncanny regularity that when the worst news surfaces the market inevitably bottoms and the news over the past few weeks has certainly been unpleasant. Given this, I am now more certain, than ever, that we are near the bottom of the cycle.
As you know from previous reports, I have been expecting one last move down to my second target of 4300 points, which I believe will occur this week and will stop the fall. Some of you may not believe this given that the market is extremely bearish right now. However, the market is generally at its most volatile near market bottoms, which is where I believe we are now.
Following the low around 4300 points, I am confident that the market will rise to between 5500 and 5800 points over the next 4 to 6 months although it is possible it could rise to around 6300 points in that time. Remember, there is an old saying in the market that the amateurs buy at the top and sell at the bottom, however, right now is not the time to sell but rather to get ready to buy.
As always, it pays to be patient and to only enter the market when it indicates that it is safe to do so. Until then I urge all investors to sit tight.
Until next time
Good luck and profitable trading.
Dale Gillham
Chief Analyst