# November Correction???



## Rainmaker2000 (4 November 2007)

Hey Guys........just thought I'd gauge thoughts on a major correction this month...maybe up to 10%...to me, its more than a 50% possibility.  Why? 

1)  Yearly cycle:  we seemed to have avoided the dreaded October correction but with the 'Santa Clause' cycle coming in Dec.Jan, about now is the most statistically likely time in the yearly cycle (untill about June..hehe)

2)  Subprime impact is widening in US and now Aus with the Australian market almost completely ignoring it to this stage.

3)  There are now healthy imbalances with currency and interest rates.....US is discount while we are very much increasing rates......and our currency ascent is hitting our major businesses while helping consumers go further into debt putting ever more pressure on rates

4)  Most of all, there are now major pockets of our market which are overvalued....specifically, mining and banks

Happy to hear thoughts on me being wrong....and we'll then let the market decide.....


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## CanOz (4 November 2007)

I don't expect a huge correction in our market here, maybe some weakness before a nice rally into Christmas.



Cheers,


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## nizar (4 November 2007)

CanOz said:


> I don't expect a huge correction in our market here, maybe some weakness before a nice rally into Christmas.
> 
> 
> 
> Cheers,




I agree with Can.


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## krisbarry (4 November 2007)

I agree with the above two post...Santa Rally is on its way.


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## greenfs (4 November 2007)

I fully expect a major correction before Xmas, especially the banking and industrial sectors. Of course, this will impact on the mining sector given the market will read that metal prices will head south based upon a projected reduced demand for raw materials.

The Melbourne Sunday Age has a major sharemarket correction as a  featuree article on page one.


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## happytrader (4 November 2007)

Yes I agree with all the previous posters.

You always need a decent dip or a sustained period of consolidation to provide the momentum for the next move up. In this case the up and coming Santa Clause rally.

Cheers
Happytrader


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## hangseng (4 November 2007)

One last downturn in the next few weeks and then onwards until next march, then look out


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## Logique (4 November 2007)

I think it may well be directionless in a trading range, until after the 24 Nov election. 

After that, wait and see if any market reaction to the elected government. Overall I think we're alright to keep moving onward and upward, until well into Q1 2008 at least. 

There is an increasing disconnect between the domestic and the US markets, given our asian export trade.


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## eMark (4 November 2007)

Logique said:


> I think it may well be directionless in a trading range, until after the 24 Nov election.
> 
> After that, wait and see if any market reaction to the elected government. Overall I think we're alright to keep moving onward and upward, until well into Q1 2008 at least.
> 
> There is an increasing disconnect between the domestic and the US markets, given our asian export trade.




I'd like to think that it's onwards and upwards through to Christmas, given that historically November is usually good to the equities market in the USA, and to a lesser extent Australia.

But with the murmers surrounding Citigroup, Merrill Lynch and others over the last week, and into next week means I'm not overly confident that we won't at least experience "volatility" to some degree....


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## Edwood (4 November 2007)

we had a Hindenburg Omen in the US on Friday, not sure its been confirmed yet (I believe the rule is there needs to be more than 1 Omen within 30 days to confirm).  There were a string of Omen's prior to the Aug drop.  Not saying we're going to get a drop but the odds are improving

from Mike Burk, http://www.safehaven.com/article-8754.htm

"*Short Term* The Hindenburg Omen, a signal developed by Jim Miekka, has received a lot   of publicity lately. The signal has had some false positives, but it has also   preceded every major decline. The parameters are:
 NYSE new highs and new lows must both exceed 2.8% of NYSE issues traded (currently   93).
 The NYSE composite must be above its level of 50 trading days earlier.
 The McClellan Oscillator must be negative.
 When the above conditions have been met the signal is in effect for 30 days."


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## Edwood (4 November 2007)

good old Wikipedia eh, we need another signal within 36 days to confirm, not sure if Mike Burk is flagging a confirmed Omen or an initial signal

http://en.wikipedia.org/wiki/Hindenburg_Omen

fwiw, apparently we had 8 Hindenburg's from June to July 28 (thereabouts)

http://www.fxstreet.com/futures/market-review/financial-markets-forecast-and-analysis/


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## Pager (4 November 2007)

Its a 50/50 situation as it always is , just like its a 50/50 bet if a stock or the market moves up or down on any one day, the fact we have had so many up days weeks and months of late in my  doesnt make any difference as to if tomorrow, next week or next month will be a down or not, each time frame its a 50/50 bet.

Having been in the markets for 10 odd years i think from day 1 ive read and heard people have been saying the market is about to tank, every so often they are right and we get a sell off, correction, bear market, for every bull there is a bear .

At the end of the day have a plan and trade the plan, if the stocks im looking for to add to my long term holdings dips to my entry price, i will buy and hold if they fall lower then so be it, chances are though in a few years time barring unforseen or major world disaster they will be alot higher.

Remember buying BHP for $12, a year later they were not far off $8, but i still hold and will continue to hold.


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## halfwheel (4 November 2007)

Thanks Pager. Thats about the most sensible thing Ive read in a while


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## prawn_86 (4 November 2007)

Pager said:


> Its a 50/50 situation as it always is , just like its a 50/50 bet if a stock or the market moves up or down on any one day




Im not sure if i agree with this Pager. If all stocks were just a 50/50 bet, then one might as well go to the casino to 'invest' and play some 2 up.

In my opinion investing is about weighting the odds in your favour, as you can never get a 100% certainty.

With you adding to stocks then you are presuming they will go up arent you? Your research should have vindicated it being more than a 50/50 chance.


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## Edwood (4 November 2007)

Pager said:


> Its a 50/50 situation as it always is




gee Pager, I'd be hoping for better than 50:50 going into a trade!  Personally I think we'll be over 7,000 before too long, but there are plenty of potential bogeys in the woodshed.

Rainmaker raised the question of a correction in November, while a Hindenburg doesn't 'predict' a correction, the probability rises:

"Looking back at historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen within the next 41 days after its occurrence was 77%, the probability of a panic sellout was 41% and the probability of a major stock market crash was 25%. The occurrence of a confirmed Hindenburg Omen does not necessarily mean that the stock market will go down, although every NYSE crash since 1985 has been preceded by a Hindenberg Omen."

I'm flat coming into this week and only hold short term so not fussed which way we go - i.e., neither bull nor bear.


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## Pager (4 November 2007)

prawn_86 said:


> In my opinion investing is about weighting the odds in your favour, as you can never get a 100% certainty.
> 
> .




, i agree prawn , but look at any market and there are as many down days as up days over time, up days/moves when averaged out are higher than down days/moves, although the biggest moves on a single day are down, take a look at August 

If the up days were not averaging more than down days then the market would stand still or go backwards , so what are the chances of an up day tomorrow ?, i say 50/50 the same as the chances of a down day.


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## Awesomandy (4 November 2007)

It has done surprisingly well for the past 2/3 months, and, for now, I don't see why this shouldn't continue. The volatility will be quite high, so we might get a few more daily gains/losses of more than 100 points, but I think we are hanging in there for now.


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## prawn_86 (4 November 2007)

Pager,

I can see your point in the short term. Ie - one day to another, but you also stated that 'any timeframe' has 50/50 odds which is where i disagree.

Personally i think that you can still weight the odds in your favour even on a short term time frame.


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## Rainmaker2000 (5 November 2007)

Some interesting posts guys......this talk of 50/50 probabilities...if you were buying the index or its ten main stocks, I would have thought 'the low hanging fruit had been picked'....congrats to those who picked up the cyclicals like RIO and BHP in 2002...I wonder if their investment would be couched in terms of 50/50, where supposedly we are today......BHP and RIO are around PE 20 and PE 14 for 2010....since the our Commonwealth Treasury is forecasting a 50% decline in commodity prices before then, a lot of bellhops may again be dismissing stocks as 50/50 gambling by then too.....The longer we don't have a correction, the more widespread it will be....I'm still buying stocks now, selling more but certainly not buying today's darlings.....


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## Gundini (5 November 2007)

Well, I have had all my Super (Fairly large) in cash, since Oct 1 this year, and have been day trading trying to profit on bounces after solid pullbacks (2 Days). I haven't been holding overnight, so basically I am waiting for a large correction. The problem with this play is I hardly ever get it right... In fact, it is usually when I jump back into the market that the major corrections happen. So, If this theory holds up, you all should be safe til Jan 2008. (Although, I may stay in cash for an extra 3 months if nothing has corrected). 

I am banking on the big pullback before the end of the year, then load up at discount prices and ride the wave to the China Olympics. (My Plan for what it is worth).

As I mentioned before, I am often wrong... And while I am picking up a lousy 5% or so in cash, evryone else is getting 20%...

The market has taught me to stick with my plan though.


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## austek (5 November 2007)

Not as experienced as some of you, but I would have thought 50/50 was ok.

It's not the amount of wins, and times you get the prediction right, but I believe it's getting the average win amount  far greater than the average
 loss.   Not so?


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## Buffettology (5 November 2007)

To tell you the truth, I converted 90% of my portfolio into cash for the first time in a very very long while!  

I have made 45% over the past 6 months, and with 20% p.a as my target rate, I can afford to sit on the sidelines for a while now.

With 7000 approaching, I think that will act as a resistance point for a while, and if we move through it, we will probably get a correction soon after.

Not to mention, with the IR expected to rise, I can see a correction coming, if not at least a fall of 5% upto Wed this week.  We already took nearly 2% today, so I will buy back my stocks at a bit of a discount.

Now wait and see.............


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## Bush Trader (5 November 2007)

Gundini said:


> Well, I have had all my Super (Fairly large) in cash, since Oct 1 this year, and have been day trading trying to profit on bounces after solid pullbacks (2 Days). I haven't been holding overnight, so basically I am waiting for a large correction. The problem with this play is I hardly ever get it right... In fact, it is usually when I jump back into the market that the major corrections happen. So, If this theory holds up, you all should be safe til Jan 2008. (Although, I may stay in cash for an extra 3 months if nothing has corrected).
> 
> I am banking on the big pullback before the end of the year, then load up at discount prices and ride the wave to the China Olympics. (My Plan for what it is worth).
> 
> ...





G’Day.  Stick to your guns I’ve been out since the 30/9/07 with my super as well and 60% cash 40% still invested.  I have since seen the market put on 400 odd points, however I have learnt from past mistakes and have found that if you change your plans you often get burnt.  Look at the selling pressure that BHP was under today, and I got ribbed for selling out on the 25th of September for $45 collected 2 divs, CGT discount and 79% return for the 12 months. The buzz was after the sub-prime that the US dollar was going to tank, gold was going to bust $1000, commodities and all things Asia were the place to be.  I don’t discount any of these thins, however a lot of hot money has entered our market, an alternate way of purchasing Aus$ in effect. BHP and RIO were popular parking spots and potentially overbought as such.  Whilst these two were going gangbusters indexes were rising and as such index funds were required to purchase other stock to balance their indexes for no other reason than the indexes were rising.  Due to the weight of these two in the indexes what will happen if they are sold off? What will happen when the sub-prime baby becomes a toddler?  What will happen if there is a short term bounce in the US$?  Good Luck, stick to your guns at least you have the satisfaction of being wrong all by yourself.  


Cheers


BT


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## explod (5 November 2007)

Bush Trader said:


> G’Day.  Stick to your guns I’ve been out since the 30/9/07 with my super as well and 60% cash 40% still invested.  I have since seen the market put on 400 odd points, however I have learnt from past mistakes and have found that if you change your plans you often get burnt.  Look at the selling pressure that BHP was under today, and I got ribbed for selling out on the 25th of September for $45 collected 2 divs, CGT discount and 79% return for the 12 months. The buzz was after the sub-prime that the US dollar was going to tank, gold was going to bust $1000, commodities and all things Asia were the place to be.  I don’t discount any of these thins, however a lot of hot money has entered our market, an alternate way of purchasing Aus$ in effect. BHP and RIO were popular parking spots and potentially overbought as such.  Whilst these two were going gangbusters indexes were rising and as such index funds were required to purchase other stock to balance their indexes for no other reason than the indexes were rising.  Due to the weight of these two in the indexes what will happen if they are sold off? What will happen when the sub-prime baby becomes a toddler?  What will happen if there is a short term bounce in the US$?  Good Luck, stick to your guns at least you have the satisfaction of being wrong all by yourself.
> 
> 
> Cheers
> ...





I concure also with Gundini and in fact after reading his post I wondered all day and just before the market closed I liquidated 50% of my holdings.  As with you both mine is also DIY Super so caution and protection of principal is paramount.      I am happy with the holding I still have as it is defensive and selected specifically for the situation we are in.

Cheers to you both for the reasurance.


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## Edwood (5 November 2007)

ASX200 now off 4.7% from the high last week, Hindenburg called it in July, looks like its doing it again


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## Awesomandy (5 November 2007)

I've just done the opposite, actually. Recently, I decided to put the equity back into my super portfolio. It sounds a little silly, but having watched everything happening, and realising that, at my age and my super balance, the principal isn't really worth protecting.


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## Rainmaker2000 (6 November 2007)

Interesting thread Awesomandy......I must agree with taking risks while your young although I don't play around with my super......I see super as more of a booby prize for if I fail to get rich before then......To be honest, I started this thread on the correction but I pretty much always stay fully invested in stocks with a margin loan as well!!!  Capital protection is however the most important objective and the most important thing is that your investment method is a risk mitigating tool.  For example, I pretty much never buy cyclicals, I don't trade, almost never buy popular stocks......I had BHP and Leighton on a platter at 12$ and $7.30 respectively and could not break my rule....in retrospect, I should have made an exception on Leighten, a truly great cyclical......my point is I love risk but its the type of risk.....if you are into mining, construction, banks at this stage of the cycle, you are paying a high valuation for what very well could be declining businesses


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## prawn_86 (6 November 2007)

I think/(hope) that once the RBA raises rates tomorrow, it should start to see a flow on effect as more money enters our market looking for higher yeilds.

This should help to stabnot push the ASX back up to its recent highs.

Thats just my theory and my macro knowledge isnt really up to scratch yet...


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## nizar (6 November 2007)

Rainmaker2000 said:


> Interesting thread Awesomandy......I must agree with taking risks while your young although I don't play around with my super......*I see super as more of a booby prize for if I fail to get rich before then......*




LOL so do I.


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## Nick Radge (6 November 2007)

> it should start to see a flow on effect as more money enters our market looking for higher yields.




Prawn_86,
You're looking at this the wrong way. Assuming the basic economic principal, the flow goes _*out*_ of stocks and into fixed income.


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## prawn_86 (6 November 2007)

Thanks Nick,

I knew that this would happen locally (mental blank  i guess  ). But if overseas funds enter the country, specifically looking for yeilds, so mainly into the debt/bonds market wont there be a flow on effect into our equity markets?

serious question, sorry if it sounds like im not with it...


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## Nick Radge (6 November 2007)

The same thing occurs but it has a few other 'added; complexities such as currency risk etc. The widening gap in the interest rate spreads should keep the A$ on a higher trajectory which may suit an overseas' fund manager, but they still need to invest the funds into an asset class of some type once the funds hit. 

90-day paper at 7.5% with no risk,  or 
the banking sector at 4.5% with possible risk, or
resources sector at 1.0% with higher risks...


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## Edwood (8 November 2007)

things are not looking too hot at the moment, Dow currently off 2.5% (350 pts), SPX has taken out a key level for the bullish case


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