Mixed signals call for caution

Published in the Geelong Advertiser, December 2013 by Dale Gillham

Interest rates still on hold? 

On the one hand we are being told our economy is one of the strongest around the globe and that the housing market has picked up incredibly well in some of the bigger Australian cities, with median values adding another 2.4% in Sydney and 1.2% in Melbourne last month. 

On the other hand, while prices heat up we see the RBA elect to leave rates on hold at historical lows once again. 

So what message does this send and who in the long run is this designed to help?

Not wanting to point the finger but when I read an article last week that pointed out opportunities raised by one of the big four banks to invest in property in mining towns to get an 8.0% yield the alarm bells rang loud. 

Why would a bank be running such promotions if not to bolster their own loan books? 

The reality is that banks are likely to struggle to continue to generate the same level of growth unless they can continue to sell more credit.

If not for the banks, perhaps the RBA believe there is a real risk of the economy or in particular, the property market stalling.  

So what do we expect in the market?

Although the market continued to be sold off this week, being the fifth consecutive week down since the high of 5453 points in October, the move so far has appeared more akin to a gentle landing than a rush for the door. 

What this may indicate is its time for the market to attempt to create some space overhead for the Santa rally we always hear about at this time of year in the media. 

This could see the market move higher into the first few months of 2014 to the lower edge of my target zone at 5600 points.

That said, as an analyst and trader my job is to always consider the alternate view, which currently indicates the market may move up for a couple of weeks before traction is lost and the wheels spin sideways. 

What could cause this to occur? 

Remember, the change of guard at the Federal Reserve in the US will occur in January and although the incumbent chairman Janet Yellen has indicated that money printing will continue after she takes the helm from Ben Bernanke next month, we also know that what we are told and what actually occurs can be two different things. 

Investors need to apply caution while still having some exposure to the market. 

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