I was interviewed this week by Julian Allen from First Prudential Markets for thier Trading Intelligence program on Board Room Radio. First Prudential are a direct market CFD provider and this show is a good way get some great information on the markets. The video is around 15 minutes long so grab a coffee, sit back and relax whilst you get some good info. Just click the link to view. Trading Intelligence

Dale Gillham

Chief Analyst, Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.For more information please visit www.wealthwithin.com.au

This week ASIC released an investor guide entitled ‘Thinking of trading contracts for difference’ aimed at educating retail investors about trading contracts for difference (CFDs). In my experience, however, the guide is unlikely to achieve the outcome ASIC is seeking, particularly because the information has been freely available on the internet for years. For example, the ASX has provided credible information about CFDs over the past two years, yet thousands of investors continue to open CFD accounts believing that this instrument will provide them with the ‘golden egg’ that investing in shares simply can’t provide. The unfortunate part, which appears to be one of ASIC’s concerns, is that the majority lose money and the question many are asking is why?

In my opinion the answer is simple. While intellectually investors know they are taking high risks, they never really consider how much they will lose, instead their focus is on how much they will make. But as I have said before, without education trading CFDs is like gambling at the races where you believe the outcome is inevitable until you are faced with the real truth. While I commend ASIC in its actions, in my opinion, it will continue to face challenges in educating investors on CFDs. I believe the only way this issue will be resolved is for ASIC to enforce mandatory education standards that are independent from CFD providers.

So what do we expect in the market?

There is an old saying that when it rains it usually pours and this is a true reflection of events we have seen coming back into the headlines over recent weeks. With US bailouts, European debt concerns, currency wars, and now tensions between North and South Korea have come to a head again. Normally we can expect news like this to increase volatility in the Australian market, however, in contrast our market has been incredibly resilient during this time which in my opinion is a great sign moving forward.

This week the market surprised many commentators when, after falling heavily early in the week on bad news to a low of 4,638 points, it suddenly turned on Wednesday and Thursday to recover some of the lost ground. Rather than getting excited about one or two days on the market, what is more interesting to me is the steady way the market has been in decline over the past couple of weeks. This supports my view that over the past couple of months the market has started to unfold in a more predictable fashion, and therefore is more likely to respect the strong support level that exists at around 4,600 points. Given this, it is possible we have seen or are very close to the low I was expecting, and I still maintain the view that the market will most likely rise in December on its way to test prior highs of 4,900 to 5,000 points.

Dale Gillham

Chief Analyst

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.

For more information please visit www.wealthwithin.com.au

According to the Investment Trends First Half 2010 Online Broking Report, 50,000 Australians have moved to online trading in the past year This takes the number of Australians now trading online to a record high of 650,000, and it is not surprising that Commsec is the online broker of choice, holding just over half of this market. The main reason many people tell me why they are moving away from advice broking and financial planners is that they do not believe they add value over and above what they can do for themselves.

As a share market educator and fund manager I am all for people taking control of their own investments, however, I am concerned about this trend when the majority of people moving to online trading have little or no knowledge of the share market. What scares me most is that many are choosing to go down this path with their superannuation. Therefore in my book the alternative that people are choosing is no better, and in many cases leaves them worse off than if they paid for the advice. The combination of limited or no knowledge and the ease of being able to buy and sell shares online is a dangerous mix which often only ends in heartache.

So what do we expect in the market?

This week our market has been a bit of a mixed bag of up and down days, with the All Ordinaries Index really going nowhere. This indecision in the market is suggesting that we can reasonably expect to see the market down next week and possibly for the next two weeks. I believe that for the market to fall now is a positive sign as it has been rising way too fast. As mentioned last week, I still believe that any fall is likely to be minor and in the order of approximately 200 points. If a fall occurs it will bode well for a further rise to my first target of between 4,800 and 5,000 points by the end of the year. I would then expect the rise to continue through to 5,200 points by February 2011, but only time will tell. Investors should consider any weakness over the next few weeks as a good opportunity to buy into some great shares at lower prices.

Once again ASIC stated this week that trading Contracts for Difference (CFDs) was like gambling at the races, and as a consequence they were working at tightening the regulations for providers in the wake of the Sonray collapse. In my opinion, however, CFD trading is no more dangerous than trading options, warrants or futures, yet little is said about the thousands of people that attempt to trade these leveraged instruments without success. Given this, ASIC should be looking to implement tighter regulations for all types of financial product providers not just those who provide CFD platforms.

The real issue is that many CFD providers get away with highly emotive marketing, which in my opinion is full of misleading statements. Providers entice people with free educational seminars, cash and other incentives to open accounts, all with the knowledge that 90 per cent of the money in these accounts becomes revenue for the provider within three to nine months.

Talk to ASIC and they send you to the ACCC, talk to the ACCC and they either send you back to ASIC or do almost nothing. What ASIC need to do is to regulate the industry to ensure the consumer is properly educated by an independent source prior to being able to open an account. The problem will, then, pretty much go away as the industry will naturally change based on consumer demand.       

So what do we expect in the market?

As you know I have tended to be bearish about the market over the past month. The reason for this is that historically the All Ordinaries falls into a low, on average, every 20 weeks. In the past 18 months, however, this has reduced to around 17 weeks, while in the last nine months it has reduced to just over 15 weeks. If we accept the low that occurred on 25 August as the low I have been expecting, then the last three lows have come in at 14 weeks which is unprecedented on the market, hence my bearish outlook.

If the market repeats this cycle, the next low will occur in the last week of November with the high between now and then occurring around the second week of November. It is possible that price will rise to between 4800 and 5000 points, however, as we have seen so many times in the past three years, post GFC anything is possible. Given this, even though I am now more bullish I am still planning for the worst and hoping for the best. Therefore, if you are buying I urge you to stick with the big stocks and set stop losses. If you need to know how to set stop losses grab yourself a copy of my book “How to Beat the Managed Funds by 20%”    

Contracts for Difference or CFDs are still firmly in ASIC’s sights after the recent demise of one provider. ASIC states on its FIDO website that, “you might think from the advertisements that CFDs are a mainstream financial product. Would you be surprised if FIDO told you they’re complex and very high risk?” ASIC goes on to say “it’s much riskier than a flutter on the horses or a night at the casino”. Whilst I think that ASIC’s stance is a little over the top, unfortunately most people who attempt to trade CFDs don’t understand what they are doing or how to manage risk and therefore, in essence prove ASIC’s statement to be true. 

What astounds me is that people ignore ASIC’s warning, believing that they are either intelligent enough or skilled enough to be successful at making money by trading CFDs. Its human nature for people to think this way, but in my experience if someone trading CFDs holds this view, then probability suggests that they will eventually become a statistic and re-enforce ASIC’s point. Where I strongly agree with ASIC, is that CFDs are only suitable for those who have extensive trading experience, knowledge, risk control and financial capacity. Sadly most people who attempt to trade CFDs would fail to qualify in these four areas. The latest move by ASIC to further regulate this area will require providers to put more disclaimers into their documentation, but what will that achieve when people have proven they don’t read them. I believe better education is the key to success.   

So what do we expect in the market?

The past week has seen our market move up by just over 1 percent, whereas the rise over the past ten trading days has been slightly over 6 percent. In essence, most of this rise occurred on only two of the past ten days, and on significantly lower than normal volume. Generally this is a sign that the current move is unsustainable, as we would normally like to see volume increasing with the trend. Given this, it is important to not jump into the market too early, thinking it is bullish and trying to grab a bargain. In the next week I expect to see our market fall over one to four days, with the length and severity of the decline indicating the likely direction for the coming month. To prove it is more likely to be bullish, at least in the short term, any downward move needs to hold above recent lows, followed by a rise above 4500 points. Therefore, until we can determine direction it is wise to sit back and wait before buying further.