Chief Editor
Some may think I am obsessed with retracements. But I must persist as it is primary to understanding price movement. Just as markets retrace down when a market rises they also retrace up when the market is falling – this is part of the confusion and uncertainty as the tide changes.

Resurgence of terrorist threats, the fear of a continuing weak US dollar are being touted as reasons the markets have been tender over the last several days. Fact is the markets have overextended themselves – it is a predictable outcome for markets which are driven by mass psyche – which in turn is driven by “fear and greed”. Fear now replaces – albeit temporarily - the greed we saw only a couple of months ago.

I anticipate we will see the Australian market retrace upwards over maybe the coming weeks before a further move downwards over maybe the next couple of months. The US market seems, at least at this stage to be drifting sideways rather than moving down. US economic data this week will have to be overwhelming to move the markets markedly. We are unlikely to see surprising upside moves as holiday mode will pervade for much of this week as Thanksgiving celebrations distract investors.

Apart from the now obvious factors weighing heavily on the local bourse we are also seeing an extraordinary number of new floats and capital raisings. Merchant banks, brokers and corporates decided 2-3 months ago that it was time to take advantage of the strong markets only now to find when prospectuses are in investors’ hands that the markets are somewhat subdued. It is likely that some of these cap raisings will struggle as again greed is showing up with pricing at the higher end of the range. It will thus be tough to make stag profits. Unless there is significant upside why bother chasing a miserable allocation?

The cap raisings will soak up money that might otherwise push stocks higher – another reason we will see an unresponsive Australian market over coming weeks.

Whilst media headlines might suggest it is time to start heading for the exit signs I don’t believe it is necessarily the right strategy. The gloom may present opportunities to buy into otherwise solid stocks but I would not want to be holding any tottery stocks – it is time to quietly quit them – but wait for an up day – you don’t have to panic.

Enjoy the ride.

Tom Scollon

Tom Scollon