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Market crash on the way?

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by Peter Switzer

Two down days in a row and so is this the start of something big? Could the spooky September that has delivered a 2.2 per cent gain and which could end up being a record rising September quarter, give way to a crashing ‘Roctober’ for stock market?

In a word: “Na.” We do have some market tests ahead but I can’t see madness.

Today’s trigger for a small sell-off was because the Federal Reserve revealed plans to take back some stimulus and existing-home sales fell in August.

Ahead of itself

The most consistent observation by market smarties is that the market has “gotten ahead of itself”. But that said, they also think the long-term play is all about a rising market — it’s the shorter-term that could have some dramatic moments.

Well-known US banking expert Meredith Whitney who sparked a lot of Wall Street’s recovery when she turned from negative to cautiously positive about US banks early into this big rally, last week warned that the market might not like hearing that the Fed was pulling back on its stimulation.

News contrast

These will be the tests. Can the training wheels be taken off the wobbly US economy and continue to drive forward? This kind of question will excite short-sellers, spook those who have made money turning them into profit-takers and restrain those on the sidelines with piles of cash.

Today’s drop of the Dow was only 0.4 per cent and there was some good news such as strong support for a Treasury auction and a surprise fall in jobless claims.

And it’s these contrast items of news that makes me pretty positive that no market meltdown is on the horizon.

The S&P 500 in the US is up 55 per cent since the March lows and our ASX 200 is up 49.5 per cent — that’s huge! — and that’s why October could be a little rocky.

As long as economic data keeps on improving and proving the recovery lives, then in November when the next round of company reports start to kick in, the market might swing back to solidly positive. Until then the markets will be more up and down.

The long-term

Long-term investors should be looking for great companies, with great management and great stories or themes, such as gas and online, as well as the blue chippers that pay good dividends.

I interviewed a guy called Hugh McNally from Private Portfolio Partners and he was so relaxed. He didn’t worry about daily, weekly or even monthly ups and downs.

He believed in the recovery story and he believed in finding great companies at good value, which he wants to hold for the long-term.

He was so calm and relaxed about his investing that he was inspirational — that’s what comes when you have a good investing plan and you stick to it!

If this market falls, I will be a bigger buyer but I suspect I won’t be alone, which will limit the falls. As Mad’s Alfred E. Neuman might say: “What! Me worry?”

For advice you can trust, contact Switzer Financial Services.

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: Friday, September 25, 2009