Bottom Reached?

Business Spectator - Hazards beyond the rally

The US share market rose steadily all night as more and more buyers felt that yesterday we had touched the bottom. And for the time being that’s true and it could well be that September 29 (September 30 in Australia) was the 'day of no hope' that we have been looking for and that the market will now form a new base. There is a good chance of that, but no certainty.

writes Robert Gottliebsen.

While the drop yesterday was hard, the markets retraced back fairly quickly. The index behavior is quite different to the previous periods. As the graphs show, the percentage of fall gets smaller and smaller. While there are shocks that are high, the reversals are fairly quick. Selling obviously indicates a lot of fear and there's a smell of blood in the air.

Earlier I've called the bottom at 4700 and that really may be the case. While the index went as low as 4400, that was outside the trading hours in Australia. 

There is a growing consensus that we are (almost) there. The new bottom should form as it is fairly reasonable to expect the bailout vote to succeed. The US would suffer the most if it doesn't so I don't expect anyone to take a responsibility for such a stupid decision.

So, the bottom will obviously form around 4700 and start its way up slowly from there. The Moving Average on the past 210 days is getting a bit closer but we have about another month to go until it reaches the current index level. That's when the index could shoot up if the economic conditions improve. The US elections should be over and some certainty should come on that side. The statistics say that the first year after elections is a good one. So, an upside movement could happen in a couple of months. The problems will remain in the financial sector as their time has passed for now. Just like with IT bubble, the credit bubble has burst. Also, thankfully, the housing one. I'd expect the house prices to stabilize. Actually, I'd hope for it as the housing is expensive pretty much everywhere. I can't even think about owning my own home.

So, I hope to see the index level to form a bottom and jump around the 4700 level for some time. Maybe even go back into 4800-5000 range. At least the slide down should end and our savings should stop effectively disappearing. :)