MELBOURNE AUSTRALIA (Daily Reckoning): The All Ordinaries managed to keep its head above water for at least the first half of the day. However, sitting watching the market within an hour after it had opened, your correspondent started to think that the positive rally didn’t look particularly convincing.
And so it turned out. Not that we are claiming any credit for excellent foresight, only that it seemed reasonably obvious that if following the heavy fall of the previous day, the market was not bullish enough within the first hour to ramp up at least a 1% gain, then it was destined to be the proverbial ‘dead cat bounce.’ By the end of the day the All Ordinaries had returned to negative territory, finishing the day down by another 0.31%.
Admittedly, that isn’t a particularly strong move southwards, but it still sure isn’t a move upwards. Again, we wouldn’t be surprised if the market chose to keep a neutral market position heading into the weekend. Why risk being long when there is still a full trading day in Europe and the US to contend with. Surely all but the brave of the big hitters will prefer to keep their powder dry until Monday.
Tom Murphy at Deutsche Bank in Sydney seems to agree, he told Bloomberg News, “I expect the fallout will be felt at least until the end of the week. There will definitely be immediate opportunities, but investors here may wait a few days for the slump to work its way through other markets, particularly in the US.”
But there is always someone in the market prepared to look on the bright side of life. Speaking to a broker from the Wild West – that’s Perth in case there’s any confusion – his comment was that he nor his clients were worrying, “A 2.5% drop? The market has effectively gone ex-dividend…” Ex-dividend without the dividend of course, but a nice line anyway.
Overnight, US and European markets continued to fall. The Dow Jones Industrial Average fell by nearly 2% in early trade before recovering most of the drop. By the close the market started to tail off again, closing down by 0.3%. Again, we would be surprised if this sentiment didn’t carry over into tonight’s trading.
In Europe the pain was even bigger with the German and French benchmark indices falling by over 1% and London losing slightly less with a 0.9% drop.
Domestically and around Asia, markets are looking destined to continue what in reality has been limited carnage, but if we don’t watch out the pile ups could continue. The All Ordinaries looks like continuing its southwards passage, while all eyes will be on the Chinese, Hong Kong and Japanese markets when they open.
So far the All Ordinaries has only dropped by around 4% since the peak, compare that to the 13% drop that the index suffered from May to June last year. Many of the analysts that have been interviewed have suggested that there is further to fall, yet they are convinced that the market will rebound.
It is almost as though they are reading from a script that has predestined the future. It would be dangerous to think that just because that happened nearly twelve months ago that it will necessarily happen this time.
The Daily Reckoning Australia