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Sinking feeling again

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by Peter Switzer

Many part-time market players worry about October’s inclination to be harsh on share players but history says September can be a rougher month to make money as a long-only investor. Of course, short-sellers and their ilk see these two months as opportunities and that’s why I am wary at the moment for short-term share buyers.

The flipside is that these are buying opportunities for the courageous who recall that November and December can be great money-making months.

All of this should be taken on board as stocks had tough week with the S&P/ASX 200 falling 106.5 points or 2.3 per cent. But it was comforting to see the market up 58.7 points on Friday to 4459.6.

And the fact that Wall Street did not spit the dummy on disappointing news on Friday to see the Dow Jones only off 16.8 points to 10,303.15 was pretty heartening.

Fortunately, despite the softer-than-expected US economic news there are more investors committed to buying the dips and these people are hoping the US economy will show signs of improving as the rest of this year hobbles along, which could set the market up for a late-year rally.

But — and make no bones about it — we are in tricky waters with the VIX or fear index up at 26.2 and this relatively high for recent weeks but still in the ‘don’t panic yet’ range.

Market spooks

So what has spooked the market over the week in the US? Try these:

The Federal Reserve was more negative on the economy than was hoped.
Jobless claims rose more than expected.
Retail sales were up but on closer analysis were not promising.
Concerns over Europe hit the Euro pumping up the US dollar.

Against this, the Thomson Reuters/University of Michigan's Survey of consumer sentiment was up at 69.6 in August compared to 67.8 in July and beat economists’ expectations as well. So, it’s not all doom and gloom and it’s why the market is not plummeting.

On the other hand, the S&P 500 has gone below the 200-day, 100-day and 55-day moving average for three days in a row and that often runs ahead of a big sell-off.

Others with a technical eye say the market is building a floor and the level 1088 on the S&P 500 is an important one. The index is now at 1079.

Two other worries for me are the bigger fall in the Dow Transports index, which can be a leading indicator and the fact that volumes have been greater on sell-off days.

For the long-term investor

September in the US represents an end to the vacation period and that’s when market action gets serious and so if a good turn of events from leftfield would be a nice way to welcome back the professional traders. However, this is a case of my heart winning over my head — I think we’re in for a challenging time over the next couple of months. That said, I will be a buyer of the companies I like because as a long-term investor, time is on my side.

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: Monday, August 16, 2010