Business News

Waiting for a sell-off, then kaboom!

| More

by Peter Switzer

Looking at what the markets are doing and considering the run of important events and challenges for the market ahead, I reckon a sell-off will eventually happen and this will be a buying opportunity ahead of a kaboom boom!

Wall Street had a nothing day but it says something that when nothing is happening, the market still went up. The Dow put on around 37.69 points, or 0.29 per cent, to end up at 12,959.71. The S&P 500 added just 0.02 per cent to 1371.09.

The fact that financials and tech stocks were negative is a bit of a sign that some profit-takers have to be pocketing their gains since October. The S&P 500 index is up around 98 per cent and the Nasdaq 130 per cent since 9 March 2009.

Since October 2011, the S&P reading is up around 25 per cent and so a sell-off is to be expected. In fact, the charts point to the fact that stocks are a long way ahead of their 150-day moving average and that can bring stocks down.

Global concerns

I’m worried about Iran and its potential impact on oil prices if Israel gets mad and does something involving military hardware. I suspect the rest of OPEC would work to keep oil prices contained to avoid a global recession but who knows nowadays?

I like the fact that the VIX or fear index in the US is now around 17, which says shareholders are getting more comfortable with shares but there hasn’t been a big step-up of investors dumping bonds and bank deposits for shares. Volumes remain below average.

It’s good that a prominent European Central Bank (ECB) official is telling the world that he expects a mild recession for Europe — that will help shares over 2012.

Benoit Coeure, an ECB executive board member, talking to Japan's Nikkei newspaper said that the 17 countries that use the euro will probably see a "very mild recession" this year and that higher oil prices should not have a lasting impact on inflation. (Associated Press)

I’m a little concerned that Portugal could become the debt problem child for the EU in 2012 but now that banks have money, thanks to the trillion euro lent out to them by the ECB, there would be less market anxiety compared to last year with Greece.

Generally it’s still a question mark for investors but I would still be buying the dips on the market.

China posts trade deficit

Finally, there could be reasons to be wary about China with trade data weakness pushing the Oz dollar down to 104.74 US cents. Traders didn’t like China posting its first trade deficit in more than a year. However, looking at the news we see there were increased imports but these were offset by a strong growth in exports. The end result was a US$31.48 billion ($29.71 billion) trade deficit — its largest in a decade.

But this only means China is growing when it sucks in imports and I’m more interested in an HSBC survey of the biggest fund managers in the world, which revealed more than half now favour shares over cash. That’s a good sign and 56 per cent like Chinese shares.

The Shanghai Composite has become a bit of a leader for our market and this makes me feel positive for Aussie shares this year.

I can’t see a massive year ahead for stocks but a kaboom boom could happen if all of the stars align.

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.

Watch more from Peter on SWITZER TV.

Published on: Tuesday, March 13, 2012

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

Dow to reach 20,000 – can you believe it?

It’s not All Too Hard, it’s More Joyous!

Abbott deserves a Tony Award for that speech!

When do we dump stocks?

Abbott’s budget reply: is he really trapped?