The market bottom was never going to be about the numbers but about confidence. On confidence I go back to the Professor on the ABC last week who said confidence is a collective, you cannot tell when it will return, it is all about someone saying “I’ll buy if you buy” and then someone buying.

Well, the collective has spoken overnight with the biggest one day rally in the US ever. That’s a signal active stockmarket traders should/will not ignore.

It’s enough to turn the herd and on the back of that lets make a few comments on the market:

  • No-one knows. No-one knows if this is the bottom of the bear market or a rally in a bear market or what it is. So don’t go looking for the answer. There isn’t one and anyone who claims to know … doesn’t.
  • Take other people with a pinch of salt. There are as many cynics (“sell the rally”) as there are enthusiasts (“that’s the bottom”) and quite honestly I suspect most of their views are determined by people’s own personal circumstances. The cynics have lost a lot of money, sold everything and have nothing left in a market that will go up today (they are missing out and not happy about it). The enthusiasts are in the market already or have cash waiting to go in and are looking to take advantage of the fall and make money from here. Point being, most people’s views are formed by their own experience. Your view will be formed by yours. Take other people’s views with a pinch of salt.
  • Its always a risk. No one will hand you a card saying “its safe to buy”. You have to take some risk to make money. You can wait and wait for confirmation that its safe as long as you like but the fear will be the same (“what if it falls over tomorrow”). It could fall over anytime, as always. Things will not change by delaying. You have to take a risk to make money and buying now is certainly risky. But the active ones amongst you will take some notice of the US bounce. It is a powerful message, it is an undeniable change in sentiment, and many of you will want to start buying. It is risky but it is understandable and I would do the same. The art of it will be to remain cynical, remain vigilant for another change and control the risk with stop losses.
  • Assume the worst. To be safe let’s assume this is not the start of a long term bull market (bit optimistic for now) but a rally in a bear market. The game now is to milk that for all its worth not develop some religious belief in the market. Faith will be punished. Cynicism will protect you.

MARCUS PADLEY is the Author of the MARCUS TODAY Daily Stockmarket Newsletter. Click here to learn more.

Peter Fray

Get your first 12 weeks of Crikey for $12.

Without subscribers, Crikey can’t do what it does. Fortunately, our support base is growing.

Every day, Crikey aims to bring new and challenging insights into politics, business, national affairs, media and society. We lift up the rocks that other news media largely ignore. Without your support, more of those rocks – and the secrets beneath them — will remain lodged in the dirt.

Join today and get your first 12 weeks of Crikey for just $12.

 

Peter Fray
Editor-in-chief of Crikey

JOIN NOW