Business News

Correction – not so fast!

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by Peter Switzer

Just when it looked like it was hammer time for Wall Street, sentiment has turned around confounding many experts who thought we were in for a correction. Of course, this is still on the cards but for now the market players are watching upgrades for US economic growth on better trade data and there is a belief that the Chinese GDP reading out today will be better than expected.

Oh yeah, and there are the hopeful types who think the Fed will ride to the market’s rescue by engaging in QE3 or some equivalent money supply expansion some time this year.

Good day to be a Dow

The Dow was up a whopping 181.19 points, or 1.41 per cent, to 12,986.58 and the fact it couldn’t beat and leave behind the 13000-level shows the door is still open on a sell-off.

The chartists are seeing a “rounding top” on the Dow, which is basically a series of closes which means the index is creating a rounding pattern like an upside-down semicircle, which can, and I say can, lead to a pullback.

There are those who argue it could lead to sideways trading at these levels but it can result in a “sudden death” slump but it would need a news trigger, such as a very weak China GDP figure.

On the flipside, really good news, say, out of Europe, which I am not expecting, unfortunately could have the reverse effect and that’s where charting can be stymied. It basically says if what is expected actually happens then the emerging trend is a trader’s friend. However, markets in the short-term can be very unpredictable and that’s why I invest on a long-term view.

In case you care, the S&P 500 was up 1.38 per cent to 1387.57 and what I like for us here in Australia was that materials and energy had a good night at the office, which should augur well for our market today.

China’s market influence

On China, the experts have been tipping an 8.4 per cent growth number but if it is a bigger result then stocks will be turbocharged and vice versa, so it’s a must-watch result.

Against this optimism, jobless claims rose and this stimulated hopes about QE3 but all of this talk is premature. The fact that economists are thinking about marking up their US economic growth forecasts is in conflict with some other softer readings on the economy.

This explains why we could see some sideways trading until either accumulated bad or good news again dictates direction.

On earnings news, Google beat the forecasts and continues to give US reporting season a nice start.

Adding to the positivity was the shrinking of the trade deficit by 12.4 per cent which is expected to see a bump-up for forecasts for the first quarter.

But don’t get too relaxed with European bond yields still a concern and these could easily be a trigger for a nervous sell-down but as I have been arguing all year, I cannot imagine the EU news could be as bad as last year but our European buddies should never be underestimated on how silly they can be!

Over coming months, there will be Greek and French elections and these could easily spook markets if the wrong people win.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Friday, April 13, 2012

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