Upfront Investor 21-06-13 | Are the Money Printers About to Stop?

Speaking at a news conference last night, Ben Bernanke forecast a controlled decrease and end to the Quantitative Easing (QE) program that has propped up the US economy since 2008. This announcement sent a wave of fear through the markets, with the Australian dollar dropping below $0.93 for the first time since 2010, and our market also fell swiftly. Note however that I have used the word forecast to describe Mr Bernanke’s announcement as nothing is set in stone. Reading between the lines of last night’s speech reveals that any change to current Fed policy is reliant on a lowering of the US unemployment rate below 6.5 per cent and a rise in inflation above current levels.

Economists are forecasting that both of these targets will be met within the next 12 months. So are they right or wrong? The simple answer is ‘maybe’. More often than not economic expectations are wrong simply because the data used to make such predictions can be upwards of 12 months old and numbers may be fudged to make them sound more appealing. We only have to look at the GFC – an event most economists concluded impossible – as evidence that economists can get it wrong big time. My thoughts are that the US is likely to continue printing money in the foreseeable future in order keep its economy afloat.

So what do we expect in the market?

Up until Wednesday the market looked as though it was recovering strongly from the previous 4 week decline. However panic swept across the financial landscape following Ben Bernanke’s Federal Reserve announcement and during the second half of the week our market pulled back as low as 4668 before buyers returned to close the All Ords above 4700 on Friday. Fear is a powerful motivator and I believe the pull-back over the last two days is somewhat of an overreaction yet it is normally when the news appears at its worst the market turns. In fact a decline of this nature (11 per cent over 4 weeks) is nothing new. Let me explain.

Looking at the history of the All Ordinaries in 2005 the market fell by around 9.0 per cent over 6 weeks, 2006 a 12 per cent fall over five weeks, 2007 saw 15 per cent in four weeks, 2010 recorded 10 per cent in four weeks and a 9 per cent drop in four weeks in 2011. On each occasion the market rose to a new high some weeks later. As a technical analyst, I work on probability and until the market tells me otherwise the data is suggesting a rise is likely to at least around 5000 points before we can confirm whether history will once again repeat.

XAO-21-06-13

To your profitable trading,

Dale Gillham
Chief Analyst
Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’. Dale has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment adviceto traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.