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When will we rally?

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by Peter Switzer

Yes, Virginia, there is a Santa Claus and there is often a Santa Claus rally on Wall Street. And while I could have issues with the famous Virginia comforting line, I suspect and hope we see an end-of-year rally.

But right now, six months from Christmas, I think the next few weeks will be challenging with negative economic and Euro-debt concerns still spooking stock markets.

Challenges ahead

To get a handle on what lies ahead for the short-term, you look to the chartists who read the market signals and my favourite overseas chartist, Jordan Kotick, from Barclays Capital in New York says the bond markets in Japan and Italy are all pointing to falling yields and the pattern is not positive.

He says brace for some market challenges in the short-term.

Locally, my local favourite charts guy, Lance Lai, who appears on my Sky News Business Channel show and writes on this website, has been predicting that the channels on his charts have been pointing downhill.

No double dip

On the other hand, David Darst from Morgan Stanley Smith Barney thinks the Yanks are set up for good growth and rules out a double-dip. He is backed up by the likes of Goldman Sachs’ Abby Joseph Cohen. These people are looking at the economic fundamentals rather than the speculative bad stuff, which is hurting market valuations.

Negative speculation

Just look at them:

Debt rating downgrades, which are based on guesses of the future.
Possible defaults, which have not happened.
Austerity programs which might slow up Eurozone growth.
A possible big slowing of the US economic recovery.
A possible double-dip into recession for Europe, Japan and the US.
A possible big slowing of the Chinese economy.

I could go on with the possible negatives but I think you see that a lot of this is negative speculation.

Sure, some US economic readings have come in worse than expected and even China has created a bit of slowdown anxiety but nothing is proven yet.

For example, China could slow from 12 per cent to nine per cent growth but that would be good not bad. The US could grow at 2.5 per cent rather than 3.5 per cent and that won’t be good for jobs but will still keep US companies profitable.

Make or break

The big stories ahead could make or break the market and they are:

The European banks’ stress tests
The US corporate reporting season which starts in mid-July.

Many fund managers see this as a buying opportunity for long-term investors and so do I. Anyone in the bull camp or in the Nervous Nellies camp should watch my interview with Ron Bewley on this website. Bewley looks at how long it takes for market crashes or bear markets to return 100 per cent of the money lost. On his analysis the long-term investors could be seeing some good news in 2011 and it could easily start when we are putting up our Christmas stockings this year!

And if we are really lucky we might get a pre-Christmas gift between now and Yuletide.

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: Thursday, July 01, 2010