Why I’m anxious this week

Founder and Publisher of the Switzer Report
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As someone who owns a financial planning business, I love it when stock markets rise and while we do a lot more than just position out clients to make money out of rising shares, a bull market just make life easier.

That’s why I’m anxious ahead of the announcement from Mario Draghi and his European Central Bank (ECB) on September 6 – Thursday night our time. And the supportive statements from the likes of Germany’s Angela Merkel, Francois Hollande of France and various finance ministers will make or break the rally that started in early June and got turbo charged by Draghi himself in late July with his “whatever it takes” promise.

The markets have believed him and they will be ‘peed-off’ if the actions don’t match the words.

Since January 1, the Dow is up 7.15%, the S&P 500 is up 11.85%, the Nasdaq has put on a colossal 17.73%, while our S&P/ASX 20 index is now 6.4% higher.

We are up 5.4% for the new financial year, which is a great start, but one stupid move on Thursday could unwind all of this good work. On the flipside, if the Europeans nail it and then the Yanks come up with a good to better-than-expected jobs report on Friday, then the foundations to end the so-called secular bear market, which can have bull market rallies like the current one within it, could end.

A perfect world

Let me share with you the perfect world scenario. It goes like this:

The ECB gets it right bringing down the cost of borrowing for Spain, Italy, etc. This helps stock markets head up worldwide, raising business and consumer confidence. Europe grows quicker, which helps China and in turn, commodity prices and our stock market and our economy.

Sure we could see a sell-off on good news from Europe, but that will be just traders doing what traders do. The facts would be that Europe and the world economy would have struck a blow for greater growth, which is needed to pay down the debts that are yoked around most of the world’s key economies.

What to do

So how do you play this challenging, unfolding, market drama?

The courageous would buy BHP Billiton (BHP), Rio Tinto (RIO) and Fortescue Metals (FMG) ahead of the ECB decision, but the cautious would wait and see. You could miss a big bounce, but these stocks have a long way to run before they are bad value. As an adviser, I’d play it cautiously, but I know long-term investors have learnt not to worry about short-term results.

Against all of this optimism, there are respected analysts tipping that the market is set to dive and the charts are looking a little worrying, especially if you focus on the Shanghai Composite. Lance Lai, my charts guy who is on my Switzer program tonight, has been worried about this and he has been on the money for a long time.

This is a most important week – I really hope it turns out to be a turning point!

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice.

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