Expect Another Stock Market Sell-Off. Soon.

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The ASX/200 is struggling to get back to 6,000. We are a month away from May. What if everyone sells away this month and doesn’t come back until September?

We mention the possbility because the failure of global benchmarks to fully recover and rally past their previous highs might be telling us something. That something is that the last correction wasn’t enough to wash out the speculative froth in markets—especially the froth issuing from China’s investment boom and stock market frenzy.

Really though, you could take your pick of “events” that might explain a correction in the coming days and weeks. Iran? Check. America’s housing slump and subprime-induced credit contraction? Check. Chinese authorities trying to check the boom from going out of control? Check.

Any of those things would be cited as a “cause” of another cyclical down-turn in stocks. That would be getting your cause and effect all mixed up, of course. But it doesn’t really matter. It looks more and more like the markets are getting ready to make another attempt at “re-pricing risk.” This means another sell off in stocks in general, and what are percieved as the riskiest stocks in particular.

We wouldn’t conisder BHP and Rio risky stocks. But as the last little bout of volatility showed us, stocks act like stocks in bear market, not like commodities. So the short story: expect another sell-off and soon. Most resource stocks, including gold stocks, are probably headed down, at which point we’d again be eager to accumulate.

The exception to the sell off will probalby be energy stocks, as Woodside’s performance yesterday showed. And we were probably a little too casual in dismissing the Iraninan incident yesterda. We were reminded again of 1979 when trying to figure out what this latest geopolitical news means.

Dan Denning
The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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