Market correction

Published in the Geelong Advertiser, August 2007 by Dale Gillham

As we know, the market runs on fear and greed and it has certainly been a case of rampant fear over the past few weeks, resulting in heavy falls. 

I believe the underlying cause of the market volatility is overexposure to leveraged positions, which has prompted individuals and institutions to sell en masse to protect capital.

In recent years leveraging, and the higher risk that comes with it, has increased 10-fold.

The market was always going to fall into its normal cycle, but it is obvious that the recent pull-back has been amplified by the use of both leveraging and technology.
I heard the term ‘‘market crash’’ this week and, let me say, our market is not crashing.

I have been saying for the past few months that the market needed to pull back to below 6000 points and, while this has taken longer than anticipated, I can assure you that what happened over the past two weeks is quite normal. The unsettling news is that the pullback may not yet be over.

On Wednesday the All Ordinaries Index fell to 5952 points. From here I believe the market will rise for at least one or two weeks as it rebounds before possibly falling away again.

For the market to prove it is bullish, it needs to rise for at least four to six weeks — if it fails to rise for more than two weeks, we can expect another fall to occur with price moving down to below 5800 points and possibly to as low as 5600 points

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