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Tom Scollon
Chief Editor
Just as I see all the gloom about the market I reckon it's time to start to thinking contrarian – not for the sake of it but rather when the markets become predictable you have to ask, “Is there another angle?”. Sellers do become tired.
Sure, there are reasons for the equity markets to soften but it's not the end of the world. The major trend is up – weekly charts for both the DOW and the All Ords are up.
The terrible twins – the USA trade deficit and government deficit are starting to impact on the USA outlook but we are still yet to see the real fallout from these overburdens. When the major fallout impacts it is hard to proffer, as the markets do act in strange ways.
The IMF recent forecasts of global growth are consistent with the current mood of the markets. They forecast that 2005 will be a flat year with growth below 2004, but they expect that growth will resume in 2006.
Their forecast figure for Australia is 3.3% for 2006 against an expected 2.6% for 2005 and 3.2% achieved during 2004.
Even though the short term outlook on the markets looks a little uneasy, what we are experiencing is a mere dip. We need to keep it in context. If our local market was to come back to say 3800 – which is about the ‘pullback' Fibonacci wave four – we have about another couple of hundred points to go. So we will have pulled back about 400-500 points, or in round figures about 10%, from the high of 4255 on the Ides of March. This was a run up of almost 1600 in two years.
The DOW is looking a little more shaky and shows every sign that it could test around 10,000 plus or minus. This again is about a 10% pullback after a 3,200 run up since March 2003. But don't be surprised to see a ‘dead cat bounce' – a move higher before finding a new two year low.
I am not betting the sheep station that both markets cannot pullback more than the 10%. But for mine, I am looking for the bargains – they will soon appear.
Enjoy the ride.
Tom Scollon
Editor
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