I read with interest an article in the September Choice magazine on option educators and their wealth creation seminars. The article states that options╒ trading is primarily promoted by educators as a ╘high profit low risk╒ strategy to make money in rising and falling share markets. Options educators have been renowned for making promises of the riches you can make trading these highly leverage instruments for decades and the streets are littered with thousands of unsuspecting customers who believed these over inflated and misleading statements and paid the price. 

This practice is not just restricted to options trading but also CFDs, foreign exchange trading and horse racing software with the same marketing spin and hard-core sales. Whilst these promoters tell the unsuspecting attendees╒ that returns in the hundreds and even thousands of percent are easily obtainable in a few short months with little or no knowledge, highly qualified options brokers suggest profits of 1.5 per cent per month or even double digit figures in a year, would be a phenomenal return. In reality, the only people getting rich are those who promote these seminars - anyone attending a seminar that promises returns that sound too good to be true should just walk away. 

So what can we expect in the market?

Over the past week the market has continued to rise instead of fall as I expected. Right now many investors would be thinking that the market is highly bullish and that the bull-run is likely to go on forever. However, one thing I have learnt about the share market is that it tests your psychology because just when you think the bull-run will continue it stops, catching many unsuspecting investors out.

If we look at the reality of the market, since the high on 15 August the All Ordinaries Index has risen only 1.48 per cent to yesterdays close. However, if we look at Wednesday’s (9 September) close, it has only risen 0.45%. So is the market really bullish? Or is it slowing down and about to turn?

I believe it is the latter as there is at least a 90% probability the market will fall in September for at least two weeks. Therefore, given that we are now nearing the middle of the month, it is likely that the market will start to fall any day. Following this, I expect the market to rise into October to between 4600 and 4950 points, which I believe will be the high for the year, before it falls again in November to below 3800 points. 

Only time will tell if I am correct, but as always protect capital by setting stop losses, and do not think you are missing out if you are not buying right now as probability suggests we will get better and safer buying opportunities in the not to distant future. 

When talking to people about investing in the share market, I often get asked how much should I invest? This question usually stems from the person’s perception of the return they will make on their capital. But they may as well ask me how long is a piece of string as there are so many variables that determine the return on a portfolio, the least of which is how much capital to invest.

An alarming trend that I am now seeing is an increase in the number of people with small amounts of capital who believe they have to invest in highly leveraged investments such as CFDs, Options, Foreign exchange in an attempt to make investing ‘worthwhile’. Unfortunately, the reality is that most of these people do not have the knowledge to manage these investment vehicles and end up loosing what little capital they do have because, in essence, they are gambling with their money.

There is a well known children’s fable of the race between the Tortoise and the Hare and we all know the Tortoise wins. The lesson here is that what seems quick is often not the case, particularly in the share market. In reality those who venture down the road of attempting to get rich quick end up achieving the opposite.

So what can we expect in the market?

Predicting the market is not an exact science, and given the market is a living breathing organism, it sometimes does the opposite of what we anticipate. By now I was expecting the market to be falling for around 4 weeks from early August into September, however, as this has not unfolded I need to re-asses my position.

Whilst I am still confident September will have a low, the move down may now only be for one or two weeks, with the fall unlikely to be as large as I originally expected. It now looks as though the market will rise in October, which I expect will be the high for the year, before it falls again in November. That said I still believe the market will struggle to move through 4600 points in the short term although there is a possibility it could trade to 4950 points before the move down into the November low.

When the market does move down, I believe price will fall below 4000 points and most likely trade to around 3800 points into November. Given this, we can assume that we are now near the top of the current bullish move, therefore investing heavily in the market right should be avoided unless a low risk opportunity with good potential for profit arises. 

Dale Gillham

Wealth Within

CFDs or Contracts For Difference have been a ‘hot’ topic for a long while with articles and ads in newspapers and magazines promoting how easy it is to make money from this instrument. This promotion has certainly been successful over the years in attracting thousands of new customers seeking instant riches. However, in my experience many of the people electing to trade CFDs simply do have the knowledge or the skill to trade them. In fact I believe that around 80% of the clients opening accounts do not really have the knowledge to fill out the forms let alone trade the instrument, which is frightening in anyone’s book and it’s no wonder many loose.  

There is the view of let the buyer beware, but in my view CFD providers do not adequately disclose the risks associated with trading this highly leveraged instrument, or if they do it is in the fine print and written in jargon that most would not understand. Fancy marketing aside the questions is should they really be held accountable for individuals that simply want to gamble with their money in a market where only the educated survive?

So what can we expect in the market?

After more than a week moving sideways and looking like it was finding resistance, yesterday the All Ordinaries rose strongly to continue its strong run up since March. It is now well and truly into my price target area of between 4200 and 4600 points, however time is stretching past the point at where I believed the market would turn. The market cannot continue to rise without some sort of pull back in price, and the longer in time that it rises the higher the probability that the fall will occur. Given this we still need to expect the market will fall away very soon, and investors need to be patient rather than jump in now thinking they are missing out on making profits. As a trader and market commentator I have always found that it far better to be overly conservative than overly aggressive, as it is not how much you make on any one investment that counts but rather how much you do not loose.   

As I mentioned last week how far the market moves down when the fall starts will indicate whether we can expect further falls or whether the next bull-run will commence. For now make sure you set stop losses so as to protect capital.

With the ASX launching its new listed CFD product in November, there has been an influx of attention in the media with many suggesting that the demand for this product will be strong. Not surprisingly there has also been an increase in advertising from other providers, no doubt, in an effort to maintain market share. But the question that has to be asked is this product really suitable for retail investors?  Trading CFDs is very high risk and should only be contemplated by those with the required knowledge and skill in trading and in handling highly leveraged instruments. Some of the providers promote they offer education but you have to question how good is it when the average CFD trader only lasts a matter of weeks in the market. In my opinion, the education is used as a lure to attract clients, rather than to genuinely educate them. This was prevalent when options and warrants were introduced into the market, and we may just see a repeat of the providers coming out on top and the mum and dad investors left wondering what just happened. 

So what can we expect in the market? 

Last week I indicated that I was expecting the market to fall by a few per cent over one or possibly two weeks in order to bring some normality into our market. Since last Friday, the market closed lower up until Wednesday falling less than 1.5%. Yesterday, in a surprising move it rose strongly to recover what it had fallen in the preceding four days.  While I expected the market to rise slightly on Thursday before falling away again into next week, it now remains to be seen if the recent strong move has just delayed the fall I have been expecting. While the market will generally be bullish through to late December or possibly early January, I still believe it needs to fall over one or two weeks in the very near future.

It seems that CFDs have been a ‘hot’ topic for a while with articles and ads promoting how easy it is to make money from this instrument. However, in my experience the people electing to trade CFDs simply do have the knowledge or the skill to trade them. In fact a number of CFD providers have indicated that around 80% of the clients opening accounts do not have the knowledge to fill out the forms let alone trade the instrument, which is frightening in anyone’s book. 

This week Australia’s largest CFD provider, CMC Group, has had to cease accepting new applications while ASIC reviews their product disclosure statement. In my view a number of CFD providers do not fully disclose the risks associated with trading this highly leveraged instrument, therefore I hope the review will change all this because it would seem that the only people making any real money from CFDs are the providers themselves.  

So whats happening on the market.

Last week I indicated that the market would either fall for another week or rise having already fallen for one week as expected. Despite having risen earlier in the week, the market has so far closed lower than it opened this week, although in technical terms we are experiencing what is known as an inside week given that the market has not traded higher or lower than last week. Given this, I am expecting the All Ords to rise next week and continue trading up for the next three weeks until around 15 October. If, however, the market does fall next week, it is possible it will continue to trade down until 15 October.