The simple answer is because you’ve paid attention to what I have shared about the market being in an “improved earnings” phase.
Only the educated see what’s coming. The uneducated are often distracted by the politics and other highly emotive information.
Let me share with you the six phases of the market, in order, as follows:
- Renewing confidence – at the bottom of the market, after a major financial collapse.
- Improved earnings – a volatile period while companies are rebuilding. This is where we are now.
- Rampant speculation – strong rises in shares. Most investors buy in late, accelerating the rise.
- Abandonment of hope – the initial drop in a major correction after the top. Those “in-the-know” are exiting. Many investors believe shares are cheap. Those who espouse the “buy and hold” philosophy are telling you to “hold on”.
- Decreased earnings – company results confirm that the move down was real. Investors get caught, still hoping that the market will rise.
- Distressed selling – those investors still hanging on abandon ship, and short sellers drive the market lower by borrowing shares from many of the managed funds designed to profit from a rise, only to exacerbate the decline.
Armed with this information, ask yourself when are the riskier times to invest?
Remember, when you finally hear analysts suggesting that overall earnings for the Australian market are likely to improve, it is another positive sign for investors, on top of the economic data that I mentioned in previous reports.
Therefore, now’s a good time to invest in a mix of good quality blue chip companies in the top 100.
What do we expect in the market?
The All Ordinaries Index (XAO) fell this week, before recovering back above 5760 points on the last day of trade. Overall, the market has been relatively steady.
Given this, the XAO is likely to rise this coming week, before pulling back into a low towards the end of February. The reason I am looking for a further move down is, although the market has pulled back sufficiently in time, it still hasn’t come back enough in value to confirm the start of the next significant rise. The XAO may turn more bullish than I’ve been expecting, however, it is important to plan for potential downside, while hoping the market may head straight up from here.
Dale Gillham is the Chief Analyst at Wealth Within
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