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The Dirty Harry question

Peter Switzer
8 July 2009
Anyone with the hankering to make money out of the current stock market effectively faces the Dirty Harry question as company reports loom and the rally that started in early March begins to give back gains.

The big bottom line question for all money makers is: “Is this the start of another market crash below the March lows or is it a buying opportunity of a lifetime?” And this creates another question: “When do I start buying into this pullback?”

It is reminiscent of Dirty Harry holding his .44 Magnum over the head of the low life hoodlum he was pursuing and saying: “You’ve got to ask yourself one question: ‘Do I feel lucky?’ Well, do you, punk?”

Market limbo

Clifford Bennett, the chief economist from Kinetic Securities, who has been dining off his big call that the bull market started on 6 March, and press released the media at the time, told me on my Sky News Business Channel program that this possible pullback is your last chance to get value out of this market.

The market is in limbo as it awaits the start of the US company reporting season and the latest jobs numbers, which were not good, are playing on the minds of traders.

Look to oil
To make matters worse, the Obama Administration is throwing around the idea of another stimulus package to help the green shoots before they wither and die. In this negative context, oil has acted as a barometer for both the health of the US and global economies ahead, and has fallen from over US$70 a barrel to under US$63.

Against this, and this is important to know for those who don’t want to succumb to negativity, is that the Energy Information Administration thinks oil will average US$69.50 a barrel in the second-half of 2009 and that’s up $US3 on its last forecast. This price upgrade is because it expects a better US economy ahead.

And it’s with oil that any investor in two minds about buying shares or selling or simply sitting on the sidelines should consider who they are and act accordingly.

Go long or short? 

If you’re a short-term trader or player, your task is more challenging as you have to work out whether you’re going long or short and for how long? That’s the adrenalin stuff of punters, and until the company reports start coming out, there are definite shorting plays available. You’re playing around with Dirty Harry gun barrel luck!

But the long investor has to be in the box seat. You could buy on the way down at regular intervals — this is called dollar cost averaging. This means if you buy at one price and a week later it falls to a lower price, you bring down the average price of buying the share or unit in an investment fund.

Some commentators have made a lot out of the fact that the S&P 500’s moving average has been crossed to the downside, but Lance Lai, a chartist, says this has to happen a number of times to turn the market’s trend line around so it eventually points up.

Feeling lucky

I have faced the Dirty Harry question and I reckon I do feel lucky. The market will head to the downside until company reports come out. Some will be better than expected and others will be worse than expected, but the outlooks will give the market hope and there will be a post-reporting season rebound.

I like the fact that equity analysts see our S&P/ASX 200 index heading to 4,800 by 30 June next year. I like the Credit Suisse analyst who sees the index at 5,500!

The indicators reveal…

Sure, this is a punt but it’s not just based on gut feeling — US economic indicators such as consumer and business confidence, as well as manufacturing and services sector indicators are looking stronger and they have been looking that way for longer.

The jobs data is disappointing but unemployment is a notorious, lagging indicator.

And what if I’m wrong and profits don’t improve until the next quarter? Well, I keep buying the same great companies with a history of paying dividends and, best of all, I buy them at lower share prices. In two or three years time, I will look back and say: “I felt lucky and what a buying opportunity it was!” 

For advice you can trust contact Switzer Financial Services.












Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.



 

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