Pullback to test traders' nerves

Published in The Sunday Times March 2007

Dale Gillham

This market fell over 200 points (3 per cent) in the first half hour of trading on Wednesday (28 February), which was a reaction to the Chinese and US markets falling the night before. The effect of such a large fall on our market, or any market for that matter, often results from an emotional overreaction, mostly by mum-and-dad investors, to media speculation. When you combine this with the ease with which we can now use technology to access the share market, it creates extreme volatility.

Professional traders and institutional investors, on the other hand, understand the emotions of the market and use it to take advantage of the inexperienced or uneducated investors.

As to what's ahead, the pullback I've been expecting is finally here. It is possible that the market will continue falling because of the large dip on Wednesday although I believe it will move up next week.