Business News

It’s timing, but it’s more strategy

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by Peter Switzer

The biggest problem about markets is that they are like horses at the racetrack — they never seem to win when you want them to! However, if you can get your timing and your strategy right you can make money over time.

What the charts say

Last night on my Sky News Business Channel program, Lance Lai, my charts guy from Accountancy Invest, looked at what the charts were saying for gold, the Aussie dollar, the US stock market and our S&P/ASX 200.

Over the past 18 months his wriggly lines have been very bullish on gold but lately a “triple top” has got him a little worried. A triple top happens when a market — gold in this case — tries to punch through a higher level — called a resistance point or level in the charts game — but has been knocked back.

Effectively it is market resistance — the sum total of the players in the gold market aren’t bullish enough to push it to the next level up. Lai thinks this says to him that a pullback is on the cards.

The Oz dollar

He has seen the same triple tops for the Aussie dollar, which now is over the 101 US cents level and it has also shown up with the S&P 500 index in the US.

Despite our usual belief that gold is popular when stocks are dumped, in recent times we have seen the Oz dollar go up with Wall Street and gold too has headed in the same direction. The nexus will one day be broken but with money supply pumping up demand and eventually inflation, it makes sense the share prices and gold are going north for now.

The Oz dollar is also benefiting from the demand which has meant countries looking for growth and looking for commodities, which we sell in spades.

Share buying strategy

Lai thinks a pullback is on the cards, especially after Wall Street’s run since August. The S&P 500 is up around 23 per cent.

Meanwhile our S&P/ASX 200 is only up about 12.6 per cent.

So, what’s the strategy?

Ultimately a pullback is a buying opportunity as I believe the long run trend is up for share prices. I like 2011 and probably 2012 but 2013 could be a test. Whether I get this right or not is all about timing and I hope I do get it right.

However, what I know I will get right will be my strategy — buying great companies that have a history of paying good dividends. If that’s your core strategy, you will have a long run good experience with shares. This doesn’t mean you can’t buy BHP Billiton, which is blue chip company but a skinny dividend payer, though you do want more solid dividend payers to ensure good returns.

Remember around half of the average returns from shares come from dividends and that’s why I like holding good dividend payers.

By the way, Lai remains overall positive but for the time being he’s wary of the pullback his charts are predicting.

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.

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Published on: Tuesday, February 08, 2011