Pull back or not?
by Peter Switzer
You can’t easily live without the work of journalists but sometimes they write some crap! The most recent comes out of Wall Street where they are suggesting that Bernie Madoff getting handed down 150 years for his Ponzi scheme somehow sparked the 90-point rally on Wall Street.
The reality is that most investors are caught between not wanting to miss out on the start of a bull market and fearing getting into the market just as it sells off again.
Remember the S&P 500 is up about 36 per cent since the March lows on the stock market and our local S&P 200 index is up about 24 per cent.
A consensus of market experts have tipped a 10 to 15 per cent pullback but there appears to be less in that camp. I interviewed Martin Lakos from Macquarie on my program on Sky News Business Channel — SWITZER — and he suggested that a severe pullback was less on the cards now.
You don’t have to be Warren Buffett to work out that Wall Street is calling the tune for our stock market and the Yanks are reacting to the flow of economic news. This has remained heavily biased to the positive.
US leading economic indicators have turned positive, manufacturing reports are getting better, the stock markets are up very strongly and technical experts say their charts are pointing to an end of the downtrend.
I like the fact that the VIX or fear index is now around 25. The lower this gets the better for optimistic investors to prevail over negative types.
But the biggest driver is the growing belief that the US will show a stronger-than-once-expected economic recovery. This is a strong incentive for investors to buy now ahead of the economic reality.
The eurozone's economic-sentiment index went up again and that is the third rise in a row!
On the other hand, there are those who say this past market surge is a bear market rally and it is nearly over. I am sorry to expose you to the minority negative view, but you must invest with your eyes open.
The short-term investor always has more to worry about as he or she can make or break a fortune with a bad decision. The long-term investor who focuses on five years out will one day look back at these index levels and these share prices and recall what a buying opportunity it was.
Let me remind you that this happy ending could easily come with some scary sell-offs, some sideways trading, but in the end the upward trend will prevail.
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, June 30, 2009blog comments powered by Disqus