>I have revisited a number of major events that have occurred on our market over the past decade including the tech wreck, the Asia crisis and Sep 11 to name a few. Interestingly, the headlines in the newspapers during these periods are no different to what is being published today. Take for example the article published in the Herald Sun on 21 July 2002, where the headline read “Wall street plunges as panic replaces fear”. The content of the article could almost replicate the current events in the market today.
Why do I mention this?
Because all markets are cyclical and every 4 to 5 years markets will fall by at least 20%. The unfortunate side to this is that while ‘headlines’ sell papers, the uneducated investor is spooked by such movements in the market rather than understanding that these moves are to be expected as they are simply a normal process of market cycles. It is for this reason why I strongly recommend investors educate themselves to understand how markets unfold so they can be better prepared in the future.
So what can we expect in the market?
Over the past week the All Ordinaries Index has fallen heavily again following the rejection by the House of Representative in the US for the $700bn rescue package. While the rescue package is being reviewed again this week, and is expected to pass through the House, I strongly believe the US government is simply putting a band-aid on the titanic. In my opinion more needs to done to ensure that economic stability is restored in the US.
It is with uncanny regularity that when the worst news surfaces the market inevitably bottoms, and the news on Monday was certainly unpleasant. Given this, I am now more certain, than ever, that we are near the bottom of the cycle. That said if the rescue package is not passed in the House of Representatives this week, we may see one last move down to my second target of 4300 points. Following this I believe the market will rise to between 5500 and 5800 points over the next 4 to 6 months.
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