Given our big fall yesterday where the S&P/ASX 200 shed 80.90 points to finish at 3874, today’s stock market movements should be interesting following a rise on Wall Street. Of course, this followed a biggish fall on the New York Stock Exchange. It is the ‘follow the leader’ syndrome but there is more in it than just presuming our minnow market blindly tracks the Yanks.
Many of these people would like to avoid a 10 per cent pullback on shares so their short-term results can look respectable, but deep down many fund managers would be agonising over the belief that the share prices we see now will probably look like great value in 12 months time when their annual results will be published.
That’s why these smarties would be buyers when the market dips. Consider a share such as ANZ with a share price of $16 and it drops 50 cents in one day, or three per cent, and you buy it and it comes back up in a week giving you three per cent return that annualises at 150 per cent.
All of the great Aussie companies that blue chip investors and fund managers want will be targeted when the market drops and this is stopping a major pullback of shares happening.
A day to remember
The bears need some really bad news and maybe the next US company reporting season might bring a market breaker. The big date for the investor diary is July 17 when GE reports. This is a great bellwether stock for the US economy.
Meanwhile the run of economic data will confirm or deny whether the US recovery happens in the second half and how strong it might be.
Ups and downs
Overnight these were the latest important economic readings:
Bears remain for now
On my show last night one of my guests, Lance Lai from ACE Capital, said the bear market is not over until the 200-day moving average is crossed a number of times. So far, it has only happened three times. He thinks a major problem could spook markets and send us below the March lows on the stock market. He brought a bell on the program but refused to ring it.
Ring the bell
Another guest, Ron Bewley, who is chief investment officer of private client services at the Commonwealth Bank of Australia, has created Australia’s own volatility or fear index which he says is back to levels we are used to when markets are not panicking and captured by the bears.
He rang the bell at the end of the bear market around March on my television program and rang it again for good measure.
He says the markets look poised to rise over the next year and a half, and a history of market bounces after a bear market supports his case. However, history does not always follow an expected script.
Bewley says he’s using margin loans for his own investments now, but he reminded me his profile is high-risk and growth-oriented. I can’t see careful investor types following his lead.
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