Speculation in the Market
The recent outbreak of swine flu has sent speculators scrambling to buy into Biota, the company responsible for the Tamiflu vaccine in the hope of making a quick dollar. But is this really smart investing or just plain gambling? On Friday 24 April Biota closed at $0.87 before rising 78.16 per cent to a high of $1.79 just two trading days later (Tuesday 28 April). Six days later it had fallen 41 per cent in price, which means anyone who purchased the stock after 24 April would be sitting on a loss. Gambling on a stock rising in price as a result of market announcements is extremely risky and definitely not smart investing.
It is important to remember that what goes up fast can also come down fast and often much faster if people panic. Smart investors know, however, that long-term profits are only generated through astute buying of good quality shares utlising sound money management principles. It is for this reason why I advocate investors stay away from investing based purely on market announcements simply because the majority of investors end up entering the stock too late and as a consequence suffer losses as the share falls back to its true value.
So what can we expect in the market?
On Monday the share market fell to a low of 3703 points, in what could be the low I was expecting between 7 and 22 May. If this is correct, then over the next week the volatility we have been experiencing over the past two weeks should subside and the market should start to rise once again. I expect the rise to last until around mid June before we see a short downward move followed by a rise up into the year yearly high in late June or July to between 4200 and 4500 points.
Right now the market is presenting some great opportunities to purchase good quality blue chip shares for the expected rise, however, I would urge all investors entering the market to set a stop loss as the run up will be short, lasting around 8 weeks into the yearly high. In my book “How to Beat the Managed Funds by 20%” I recommend you set your stop loss no more than 15 per cent below your entry price.
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 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
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