Last week I was reminded of a quote by Warren Buffet who stated following the extreme market pull in 1974 that we are fearful when others are greedy and greedy when others are fearful. Times have definitely changed, and people have swung from the greedy heights of the long bull-run between 2003 and 2007 to being fearful of the recent bear market.
Research by AMP Capital Investors, however, indicates that the average rise out of a bear market in the first 12 months is 34% but only those who take action will avail themselves of this gain. If we accept that the low that occurred on 21st November 2008 is the end of the current bear market in Australia, then probability suggests that investors who follow Buffets wise words should be well rewarded.
Sadly, however, most investors will sit on their hands and do nothing rather than avail themselves of the opportunity, and in so doing will potentially see their portfolios continue to underperform for quite sometime. In my opinion, it will be the investors who educate themselves and who take an active approach to their share market investments that will be profitable in the next 1 to 2 years.
So what can we expect from the market?
As I have said before in volatile markets we can expect the unexpected, and in my report of 10 February I indicated there was a higher probability that the market would rise over the coming few weeks to break above 3762 points. However, while the volatility has eased, the market has not unfolded as I expected.
While it did rise two weeks ago, last week it fell to trade to its lowest levels in three weeks and has continued the sideways trend it has been in since last November. Given this and the fact that the market has so far failed to break above 3762 points to confirm the low of 3201.5 achieved on 21 November was the longer term low, we now need to reassess our position.
Often when a market falls heavily, the resulting rise struggles to gain momentum and instead displays signs of bearishness, which is what I believe is occurring right now. It is possible that the current sideways move will continue for the next month before we see any strong move up into around mid year to levels of between 4200 and 5000 points.
There are a number of good shares presenting profitable opportunities for those who are prepared, but as always we need to be careful and wait for confirmation. It is always wise to plan for the worst and hope for the best, because you never know when the unexpected will occur. After all I have never seen anyone worry about shares rising in value.
Until next time
Good luck and profitable trading
Dale Gillham
Chief Analyst
