Has our market bottomed
Published in the Have a Go News Perth, March 2012 by Dale Gillham
We have all been on a car trip when inevitably someone says, "Are we there yet?"
Whilst the share market is not a car, it has been on a long downward journey over the past few years, which for many has seen emotions run hot and had many wondering on more than one occasion whether or not the market has bottomed.
When taking a trip in a car, we have a map, road signs and predictable situations such as when someone needs to go to the toilet or gets carsick; and so too the share market gives us a map, road signs and predictable events.
These maps, road signs and events become evident in the study of market cycles, and they can tell us whether a turn in the market is near or if we have further to go.
Let me explain....Cycles, whether economic, business or share market, are caused by predictable human behaviour in the way we react to various circumstances.
When something happens, like a traffic light turning from green to red, we react by applying the brake and stopping our car.
Human behaviour is sometimes programmed into us like stopping at red traffic lights, whilst other times it is hard wired into our DNA such as how we react when subjected to fear or greed.
What is clearly evident is that human behaviour is predictable as we are all creatures of habit.
For example, I am sure that if I followed you for two weeks noting what you do and where you go that I could predict what you were going to do and where you were going to be in the future with high accuracy.
The share market is no different, as en-masse investors whether professional or personal will generally act as they always have.
So are we there yet?
The market fell in price by more than 50 per cent into 2009 and the low occurred within the allowable time frame for a cycle low; therefore we could reasonably expect that the low has occurred.
That said, as it happened very early there is still time for the market to unfold in a similar way to the declines we saw into the lows of 1974 and 1983, where both unfolded over around five years.
There are a few reasons why I cannot commit to the 2009 low just yet.
Firstly, it came in early, and apart from a six to nine month bull-run from March 2009, has remained essentially bearish rather than rising as would be expected after a significant low.
The good news is that past bear cycles have lasted only five years; as such, if 2009 is not the low then probability suggests that the bear market could end this year.
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