Articles for: United States

In my last article, I took a look at using the System Builder in ProfitSource to back test a trading system.

Our market was again US driven last week. The Australian bourse spiked on Tuesday in reaction to the positive response by US investors to the 8.2% GDP growth in the September quarter. Without taking anything away from the US markets, what is more important is what future level of GDP growth can be sustained? The 3rd quarter growth was largely from increased consumer spending part of which came from a tax cut but also some came from an increase in “fantastic plastic” credit which adds to the lurking “indebtedness” bubble.

The predictable 0.25% interest rate creep announced last Wednesday hit a number of sectors, notably the Banks, Retail, Building Materials and Infrastructure. The sulking response was surprising given that the expectations were so overwhelming for an increase – the only surprise was maybe that it was a month early.

The markets moved higher – “move” being something of a slightly dull term. The markets showed that maybe from here it is going to be something of a crawl to the top wherever that might be, but increasingly the experts are saying that is not far away. Who knows? Although the number of pundits who claim the market is overvalued is now gaining in number. And this is confirmed technically as many markets start off the day with energy only to fade as the day closes – a sure sign of caution and indecision.

Some investors picked this stock market run up as early as March, some have picked it up over the last few weeks, some have just got in recently and are now wondering whether they should bail out and lastly there is the group that have remained on the sidelines. And I guess there are probably many investors that fit into almost all categories.

The last week again showed continuing momentum but despite the good news on the US reporting front, stocks did not match that with a surge of buying as much of the good news has been factored in. This could be a case of "buy the news sell the reality.” Indices volume is now starting to lag and this can also be seen in individual stocks both here in OZ and in the US. It’s called taking a breather – which is good to see. With the market having achieved such gains the propensity for further upside for the medium term, is abating as investors become more cautious.

So you might ask what is the Caviar Index – it is simply a measure of the good times. When times are good – or we perceive them to be - then we start to live like lords again. We dine out more – at better restaurants – luxury car showrooms become busier and so and so on. Based on Australian economic data we supposedly have been living off a green paddock with rich pickings over the last few years – better than most in the western world at least. But yet few people would proclaim that these have been years of milk and honey and in fact on the contrary it has sort of been hard going some would say.

There is little doubt that the markets have confirmed sustainability and this appears likely to continue barring any major surprises. Technically the markets still want to keep rising. Volume remains firm and there are few sellers so buyers left behind when the markets took off in March are having to pay steep prices to get a stake in the market in these robust times.

I am revisiting the question “is it too late to enter the market?”, as there are so many investors constantly asking this question. They look at the juicy profits achieved over the last few months and ask is there room for more. I believe the short answer is yes but that does not mean you go out and splurge tomorrow.

I have stayed long Australian stocks and whilst I sold my US bull call spreads I am having a bob each way as I still hold US bear put spreads.