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Banks are really on the nose at the moment and no-body wants to go near them. The good news is the smell may go away but the bad news is this may be only for short while.
There is a feeling the major banks are not levelling with us and have not put all their ‘credit woe’ cards on the table. So right now there are few buyers of substance. But there are sellers even if it is just for redemptions.
Every day money must be taken out of the market for legitimate reasons. For example as retirees claim their super money or as investors want to cash in a managed fund the Insto have to sell shares to get cash as they also need to keep their cash investment ratio in accordance with their charter. Normally as they would sell there would be buyers but there are none of any significance at the moment and so they just have to dump their stocks at whatever price they can get on the day. And so we have seen one plummet after the next.
Almost no matter whatever chart I look at, at the moment for the Finance sector I see another leg down. Take a look at my Elliott chart:
click chart for more detail
My apologies for compressing the chart so much but my intentions were good as I wanted to give you a ‘big’ picture. And maybe you know that all too well because you can see your ‘super’ balance has slumped as bank share prices have sunk to values of four years ago.
I expect to see a rally in the coming days – maybe even over the next 2-3 weeks and then I expect another leg down – maybe 10% from current levels.
Why do I know so? Well, many of you in investor land who fear the worst is still to come are going to sell down when the index gets back up another few per cent. Even though you have felt most of the pain you do not want any more. Retirees will bring forward withdrawals and so this ‘en masse’ move will cause the index to fall. This ‘investor habit’ has been happening since time immemorial in such markets as we are now experiencing.
But one day sellers will become exhausted and a price will be reached where sellers are not prepared to let go of their stock and in fact buyers will arrive. And that is when we stalk looking for entry.
But the average investor will not see it happen as they will still be running scared and it will be the Instos quietly buying.
You can be with the Instos – start doing your homework and be ready to strike.
Enjoy the ride
Tom Scollon
Chief Analyst
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