Everything’s going according to plan

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There are some weeks where there is nothing new to report. This is one of them.

All the charts and indicators mentioned previously in recent weeks, combined with topics discussed on Switzer on 1 October, lead to only one conclusion this week and that is that one should exercise … patience.

By now, you should have taken profit on most of the stocks that you’ve wanted to and you should now be in a position to ‘buy the dips’.

The only stock remaining in this portfolio is Envestra Ltd (ENV), which I recommended on 19 March 2012 and updated on 10 September 2012. This is a ‘Steady As She Goes’ type stock. Impatient investors might be tempted to take some profit given it has already risen 20% in seven months. This stock is trading at an important level of 90-91 cents, so how it trades here will give an indication of whether previously identified higher targets will be reached. I will keep you updated with any developments.

As I survey the globe, and my key indicators, I sense we remain in a ‘nice muddle through’ scenario for the medium term.

Short vs long term

Expectations are that we will track higher in the medium term due to the range of initiatives undertaken by monetary authorities around the world, however in the shorter term, it seems much of the good news has been already factored in.

Tops and bottoms are notoriously hard if not impossible to pick from a timing perspective, so it is easy to be wrong. Tops in particular often take longer than expected to see through, which is why, when we see falls that follow tops, they occur violently. There is an old saying: An escalator is the path the market moves up, but on an elevator is the way markets come down.

The US market looks ripe for a retracement and gold looks set to pull-back and take a break from the recent highs. Meanwhile, China’s market look shaky as it tries to find a base, but to this date the jury remains out as to how this will ultimately go.

The US S&P 500, tracking along as expected, but ripe for a correction

Below is a summary of the pros and cons I see around the globe:

Positives

  1. A pull-back in global markets is not a negative. It is necessary so that markets don’t get too far ahead of themselves, avoiding a large crash.
  2. Given what has gone on globally over the past three years, a muddle through scenario is the best one can hope for at this stage.
  3. It is an election year in the US, and China is preparing to hand over the reins of its leadership. Nothing too bad should happen right now.

Negatives

  1. Shanghai’s Index remains a concern.
  2. Markets can have a confluence of negative events, all unforeseeable from a fundamentals perspective when markets begin to fall.

Please note: my views are not for the long term. My method results in views expressed that relate to an outlook that lasts weeks or at most months. For example, my view on Shanghai’s Index has for now been met and completed since 22 March 2012, 11 days later. The stocks recommended as ‘Steady as She Goes’ may be held for the longer term, which for me means months.

Important: 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. Consider the appropriateness of the information in regards to your circumstances.

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