by, 15th-March-2009 at 01:18 PM (3997 Views)
Obviously I'm more bullish than most at the moment so I thought I would put forward some analysis and reasons behind my current stance.
Firstly the reasons behind my current stance
- The bearish sentiment in the markets atm is huge, akin to the top of the bullmarket around Oct 07. History shows that this is the time to start looking for a reversal in the markets.
- IMO the share market has overshot the real economy to a certain extent especially in Australia. We have seen major falls in the Aussie stock market but the Aussie economy is standing up reasonably well - I realise we are seeing rising unemployment and are entering recession but we are yet to see anything near depression like problems, I just think the market has factored in more doom & gloom then what we have seen so far.
- Most of the sellers are now out of the market, everyone who wanted out are now out. Most of the excessive leverage in the stock markets has been unwound - think Storm, Opes Prime and margin loans in general. Meaning the path of least resistance is going to be up for the moment at least. IMO to see another major leg down we are first going to need to see a new leg up to introduce new sellers for the next wave down.
- From a T/A perspective, there is strong bullish divergence on both the weekly and daily charts. The thrusts down have slowed even though we are still getting a spate of bad news. Both these signs point to momentum to the downside slowing.
- A lot of companies are putting in basing patterns and are either breaking to the upside or looking to break to the upside. CBA, WBC, BHP, RIO, WES, WOR, WPL. All these companies went nowhere near their lows as the market was making new lows.
- The stock market is normally a leading indicator and we will see the markets reverse or show a base before we see the same thing in the news and real economic data.
I have been seeing signs for awhile - posted on the 16/02/09. We've seen a retest of the lows and a slight probe lower, now the rally?
While my view is somewhat bullish I'm not expecting a new bullmarket or even a sustained trend just a very strong bearmarket rally to around the 4500-5000 area at best, maybe 3500-4000 at worst. After that a couple of scenarios could play out and I will need to reassess but at best we will trade sideways for a number of years at worst we will see new extreme lows. But I stress the major trend will still be down so the risks will remain to the downside.
It's also my view that we will trade sideways for a number of years above the ultimate low of this bearmarket - whether we see the ultimate low this year or not, who knows
This analysis is not about being right or wrong it is about trading for profit and my outlook will change as the market changes and hopefully my portfolio will change from long to short as the market changes.
I think market conditions are starting to change again and it will become easier for swing trading over the next few months. We will see some very good trading opportunities and I'm trying to position myself to take advantage of these opportunities.
The fact my trading portfolio has moved to long only positions over the last few weeks and has so far taken advantage of this little bit of strength currently in the market is a positive sign for my methods and I'm now well positioned to take advantage of any extended rally and my risks are very well controlled if I'm wrong.
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