Editor: All Too Good To Be True?

After holding its head high for several weeks and demonstrating a mind of its own, the All Ords caved in and followed Uncle Sam down on Thursday taking a 42 point caning. The big hit was not so much because of on-going fears of a rate rise as that is now an old story, but rather a wake up call on global growth when China made a notion they would be moderating their growth rate. Not a big deal really when you consider the Chinese economy grew at 9% in 2003 and will probably turn in a rate close to 8% in 2004. Not bad when you consider the world's largest economy (the USA) will grow this year at about 4.5% and struggling Europe at less than 2%.

So is this a minor or major pull back? At this stage if we look at the trend objectively it is still heading up, even though the Australian All Ords lost ground in April - to the tune of 9 points. Noel Campbell in his article below, raises the possibility of a double top - legitimately and as you read his article you will note some caveats. This is not a period to be cavalier or to stress out, but as per usual to approach your analysis in the usual text book manner!

So is it time to buy, time to sell, or time to panic? Without doubt there were so many positives about dipping your toe in the water at the beginning of the major move up last year as now you can easily ignore a blow torch day like Thursday. But assuming you did not get set with a portion of your portfolio, what to do now? These will be volatile times ahead but there is still value in the market and even last Thursday there were stocks that rose. And there will be in this coming week.

Some large and medium cap stocks are looking quite uneasy and it is worth looking at using derivative strategies here such as Options – perfect timing. In a strongly trending market as we saw for the last nine months of 2003, where stocks are largely copycatting each other you need to be in early on a position whereas in this current sideways market stocks will be moving in a wide range of directions – much easier to find option winners!

I have mentioned many times in this column that making money is about managing your potential losses. Thus continuous culling using stop losses is essential. Cleaning out on a day like last Thursday is sacrificial especially for small caps as on a panic day there will often be very little market depth on the sell side. Remember it is a constant process.

So with continued volatility there will be plenty of opportunities but whatever you do...

Enjoy the ride!

Tom Scollon
Editor