The Big Picture

Though the big picture may not help with short term trading it is useful to look at it from time to time.  I am looking at the USA main index (the DOW) and the Australian counterpart (the XAO), both monthly charts:

Click to Enlarge

Click to Enlarge

You of course can make your own observations but I would like to make a couple.

Firstly the Australian market is well off its 2007 highs.  In contrast the DOW is well past those levels and even if there was to be a major pullback it appears those 2007 levels may well hold.

Then looking further out – another 5 years beyond a looming pullback - a new high some 50% higher than the 2007 levels appears a possibility.

Of course a lot can happen in the time perspective we are looking at.  So even though we see the odd dramatic day on the DOW there is a lot of money chasing the USA market higher.  But this could also be setting the market up for another bubble.  One key area of concern is the level of leverage.  Investors have never been as highly leveraged as they are now in America.

But there are other bubbles in the making and even though it may seem the DOW is stretched it could keep heading higher before we see any major pullback.

The XAO on the other hand in another five years does not appear likely to even reach the 2007 levels.  That is in the 13 years 2007 to 2020 – the net market change could be nil!

So the outlook for 2015?

I expect a soft market with plenty of volatile and probably a negative year.  Of course you can make money but as usual it will always be about choice.

Enjoy the ride