Chief Editor

In Issue #4 28 April I spoke about the likelihood of retracement of the Australian stock market and since then the market has been in steady decline. At that time, my expectations were that the XAO could fall to about 2916. The comments in that article still hold. The numbers might vary, but not greatly. The trend is still up – sure it has weakened but it is still capable of resuming a rally and climbing to 3150 – although the ride may be a bit bumpy. You might find it of value to revisit that Issue.

When markets are a little difficult it is a good time to continue to do your homework with even greater diligence. Most people get the blues when the markets retrace and turn their back on it. Don’t - for two reasons;

  • These are the times you are most likely to suffer loss of capital
  • There are buy opportunities when you least expect it – continue to trawl! I picked up OSH last week – up 10% on the week - and there will be more this coming week

Just as three weeks ago I spoke of the ensuing retracement and it was time to plan for a pull back, now is the time to focus on the next move up – this is how contrarian traders make superior returns.

Remember also we spoke of how sector cycles differ? So even though XAO has wavered in the last 4 weeks and had generally little support there are many sectors that still have strong underlying support: Consumer, Industrials, Property Trusts, Telecom, Utilities, Media (refer Issue #3 – both PBL and SEV have had great runs since then), Retailing, Food & Drugs and of course Banks.

Like everyone I will be watching closely over the next two weeks to confirm when the retracement is complete and when the move up has resumed.