Homespun wisdom has always advised us to watch our p’s and q’s but cautious investors might need to watch their v’s and w’s.
Of course, if you are sick of the anxiety of ‘should I get into the market now or wait for a sell off’ and you don’t care about a 10 per cent loss in the short-term, then you might as well get in. It could be wise, however, to wait until after the US GDP figures which are out tonight in the USA.
If these disappoint, and I will be surprised if they do, then the market could use it to retrace, but I don’t expect any sell-off to be worse than 10 per cent or thereabouts.
If there is no big sell off, the smoothing out of the big ups and the small, very small, downs of the market since 6 March says we have seen a V-shaped recovery of the stock market.
On CNBC recently, Emily Saunders, the CEO of Saunders Financial Management predicted an 11 per cent retracement of the Dow Jones index and the S&P 500.
“We expect [the Dow] to be back down to the 8,000 level and high 800 level on the S&P,” Saunders told CNBC.
“Right now, the major market indices are about halfway between the October 2007 highs and March 2009 lows and we think this is going to be a W-shaped recovery in terms of the equity markets and we are now in the top part of the middle part of the ‘W’.”
So if you’re a short-term trader, you have to bet whether she is right or wrong. On my show SWITZER on Sky News Business Channel last night, ABN Amro Morgans’ strategist in Brisbane, Marcel Von Pfyffer, said his research team thinks fair value for local S&P/ASX 200 is around 5,100 and that’s where they think it will be by Christmas!
If these guys are right, and it’s easy to be wrong in this game, then we could easily retrace 11 per cent as Saunders suggests, but then turn around and head up towards 5,100.
As I have pointed out before, an AFR survey of a whole team of equity analysts has said the S&P/ASX 200 will be at 4,800 by mid-2010.
So let's put this into perspective. If we are at 4,200 now and we get to 4,800 by June next year, that will be a 600-point gain or a rise of 14 per cent! That’s not a bad rate of return for less than a year’s investing.
So what does it matter if you get in now and lose 10 per cent for a few months but end up on the better side of 14 per cent? That’s your gamble and tonight’s US GDP figures could be critical to another jump in markets. This would reduce your potential gain if you’re not in the market. On the other hand, if the GDP figures are disappointing, the market could dive and you could get in later and lower.
No one ever said it was easy to make money on the stock market, but the longer your timeframe, the easier it is to invest and sleep at night!
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