Is the Bull back?
"I expect to see a number of rallies like we have had in March over the coming years, the trick is to make sure you lock in the short term gains and look to buy back cheaper."
March has been the source of highs and lows, the market hitting a low of 3080 and then proceeding to produce the strongest rally we have seen in 18 months.
Is it all over?
If you take the time to read through my learned friends weekly newsletter (Daniel Gouldings sexton report) you will note that he expects to see the market pull back, his view is that this is in fact a Bear market rally. I agree with Daniel although I have come about my conclusion through different means.
This rally is well over due, companies have reported well in February and with the US buying Toxic Debt, the banks liquidity will improve and with it lending will free up. This process is happening now and has been for some time, I expect that over the next 12 months we will continue to see an number of good quality assets recover their recent losses as concerns over their debt levels subside. This will be a positive for the market and will help to stabiles volatility.
There are however still a number of underlying economic concerns, including exports out of China which have fallen 25%, manufacturing has dropped and unemployment is raising and will continue to do so. The Australian dollar has fallen which will continue to affect our trade. These problems will not all be solved buy the purchase of Toxic Debt, as such I expect to see the market fall back over the coming weeks or months.
I expect to see a number of rallies like we have had in March over the coming years, the trick is to make sure you lock in the short term gains and look to buy back cheaper.
On the below chart, I have drawn two lines; these are points, which I expect to see the market turn down. We will be watching them closely over the coming weeks.
I will also be keeping a close eye on the banks and top twenty stocks as these are a good lead indicator to where the broader market is going.