All Ords Report 19/11/2013

Could Australia be headed for a US style government shutdown? During the week Joe Hockey announced that Australia’s debt ceiling (or as I call it – credit card limit) needs to be increased to a proposed $500 billion (from the current $300 billion limit) in order to stave off a halting of government services including welfare payments and Medicare. Of course this subject of increasing our debt limit has unleashed fierce debate between the coalition and the Labor party with the latter citing a lack of evidence to prove the increase in debt is required.

In my view the childish in-fighting between the two parties won’t resolve anything but that’s politics for you.

This debate however brings to light the closer-to-home issue of handling your personal debt. I talk to people all the time who are wanting to start building wealth yet at the same time dig themselves a hole by taking on mountains of consumer debt to buy ‘toys’ such as new cars, holidays and the latest big screen TV. The first rule of building wealth is to spend less than you earn, however, I find most people tend to have more month at the end of their money than money at the end of the month. If you are serious about building wealth look at your current financial situation and pay off your outstanding debt as soon as possible. Once free from consumer debt you can begin to look at how you can invest residual income.

So what do we expect in the market?

Early this week the market continued the recent sideways movement on the daily chart, however on Wednesday the bears gathered pace with the All Ordinaries Index dropping around 80 points to trade back below 5400 points to test support from the September peak of 5307 points. This is the pullback I have been waiting for and now it is just a matter of the market confirming support before either turning back up to continue the dominant uptrend or we may see it extend lower towards the next level of support, being around 5200 points.

It’s during times when the market is pulling back to confirm support that I find a lot of inexperienced traders and investors undertake knee-jerk, emotional reactions, whereby they exit positions without following rules, only to see the market turn and continue higher. I’m all for exiting using your rules, even if the market does continue higher, however remember how markets move in a staircase formation rather than simply straight up or down. Understanding market movement and following rules is the key to success over time.