# Start of August? Time for a Bounce Back?



## chennyleeeee (28 July 2006)

Its the month of August soon, does the market seem its about to bounce back up again? Has the shares in the market exchanged hands enough times that hardly anyone is holding onto 2000% profits. Are all the profit takers back for more? Although there seems to be a bit of volatility at the time, it actually seems like alls about over soon. We might be seeing some blue sky? Any opinions?

CHEN


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## wayneL (28 July 2006)

The bears were just doing warm up exercizes, the main game hasn't even started yet.

However they may just allow the bull a little rope..... :batman:


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## YOUNG_TRADER (28 July 2006)

Well July was a negative month for the overall market    

There is still alot of cash sitting on the sidelines, so who knows?

I still think the stronger fo longer view in the resources sector holds, however am willing to concede that factors such as inflation and as a result central bank policies on tightening of credit and general geo-political tensions will play on the mkts mind,


I have attached an image courtesy of on online column Nelson's Column, it gives the probabilities for stock market rises and falls based on past performance.


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## swingstar (28 July 2006)

Not anytime soon IMO...

Wars in the Middle East
Petrol prices sky high
Hence food is up (F&V up 60%)
Interest rate rises
IR laws
And last but not least... BANANAS UP 250%!! 

All this creates a whole lot of uncertainty and short pockets.


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## visual (28 July 2006)

if no one is buying bananas how is it affecting the inflation rate?  can someone please explain that to me,please.


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## swingstar (28 July 2006)

visual said:
			
		

> if no one is buying bananas how is it affecting the inflation rate?




Just kidding.


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## wayneL (28 July 2006)

visual said:
			
		

> if no one is buying bananas how is it affecting the inflation rate?  can someone please explain that to me,please.




That one slipped past them. They normally exclude anything that actually effects people budgets... they forgot about that damned cyclone


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## visual (28 July 2006)

swingstar said:
			
		

> Just kidding.




right,   about what


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## krisbarry (28 July 2006)

visual said:
			
		

> if no one is buying bananas how is it affecting the inflation rate?  can someone please explain that to me,please.




They are buying other fruits instead, hence the supply/demand problem.

Also note extreme drought conditions and extreme cold/frost has crippled many crops this year, again adding to the supply/demand equation


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## visual (28 July 2006)

wayneL said:
			
		

> That one slipped past them. They normally exclude anything that actually effects people budgets... they forgot about that damned cyclone




Wayne,again though how is it affecting the inflation rate?and why is the market reacting so badly seeing that bananas will soon be in normal supply and guessing selling at normal prices so negating the temporary effect that they`ve had thus far.


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## Porper (28 July 2006)

wayneL said:
			
		

> The bears were just doing warm up exercizes, the main game hasn't even started yet.
> 
> However they may just allow the bull a little rope..... :batman:




I've been short the past few weeks, unsuccessfully as it turns out, but I am amazed that the US especially has done so well with all the bad news with their economy supposedly in the Pooh Pooh. & the war which appears not to have any effect on the markets as yet.

I agree with Wayne in that we 'ain't seen nothing yet.

A certain Mr.Radge has an interesting spin on the markets tonight, and he is pretty damn good with his assessment of the markets.Of course if you want to hear for yourselves you need to join the Chartist.

I for one will be looking to be weighted to the short side heavily in the not to distant future if things go to plan.

Profits to be made because I don't think consolidation is an option.


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## Smurf1976 (28 July 2006)

Inflation ultimately comes down to more money (including credit) chasing the same amount of goods and services. If both are growing (as they have been) then it is a case of the money supply growing faster than the consumption of goods and services. Either way, the value of money is diluted by increasing supply so you pay more to get exactly the same thing.

We've seen it with stocks. Pay a fortune for a dot.com that doesn't even have an acutal business. As for making a profit...

We've seen it with houses. Borrow 2 or 3 times as much money to buy exactly the SAME house. That's inflation at work big time.

We've seen it with hard commodities. The quality of crude oil is declining but the price is up 600%. More inflation. Likewise the rise in everything from coal to iron ore.

But there's still more money even with the increases in stock, house and hard commodity prices. It has to go somewhere - it seems that soft commodities such as wheat and sugar (and of course bananas) are next in line. Bananas this quarter, wheat (ie much of what you eat), corn and sugar just around the corner (IMO).

It's like having a big dam on a river. If it keeps raining then water keeps flowing into the dam. First you build up the level of water in storage. Once it's full you let it flow down the river - it HAS to go somewhere if it keeps raining. You have no choice but to let it out once the dam is full - NO choice.

How do you stop it? Turn the rain (incresing money supply) down to a rate that equals the rate you're using the water (growing the supply of goods and services) in order to keep the storage level (prices) constant or at least changing at only a modest rate. 

Problem is, there's been a huge amount of rain that hasn't even flowed down the river and reached the dam yet - keep clear of the river banks downstream or be swept away in the inflaion flood once it hits. 

As for the RBA, their river height gauge seems to be located immediately below the dam's spillway - it only says that it's been raining when it gets to the point of there already being a flood.


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## Smurf1976 (28 July 2006)

Looks like I'm a bit late to forecast the inflation spreading to non-banana foods including those produced from wheat. Already happening it seems. http://www.abc.net.au/news/newsitems/200607/s1699576.htm


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## happytrader (29 July 2006)

Its been a contrarians or bargain hunters market for afew months now. They're the traders that buy at bargain prices and lock in profits fast. Keeps the market ranging or in consolidation. Their actions are a direct link to their mood, pessismistic and risk averse.

The trend traders or buy high sell higher set have probably gone fishing for the time being. However, a beginning of the month bounce is always on the cards even if it is shortlived.

Cheers
Happytrader


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## nizar (29 July 2006)

Growth slowing in the US will stop the FED from raising rates...
Which means the bull is back for US equity markets and we get the follow-through effect...?

http://www.marketwatch.com/news/story/Story.aspx?guid={5AC8EB2D-72E1-4D66-8C50-3C0CFC4D3FD2}&siteid=


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## michael_selway (29 July 2006)

chennyleeeee said:
			
		

> Its the month of August soon, does the market seem its about to bounce back up again? Has the shares in the market exchanged hands enough times that hardly anyone is holding onto 2000% profits. Are all the profit takers back for more? Although there seems to be a bit of volatility at the time, it actually seems like alls about over soon. We might be seeing some blue sky? Any opinions?
> 
> CHEN




Hi Medium Term shoudl be up, supply hasnt caught up with demand yet for basemetals

but longer term may be different

thx

MS


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## swingstar (29 July 2006)

I'm only going to be short for the near future. Don't want to be in cash during any large drops. Dow again sitting in 11200-11300. Has taken some big drops recently each time it's tested it.


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## YOUNG_TRADER (29 July 2006)

YOUNG_TRADER said:
			
		

> Well July was a negative month for the overall market





How silly I am, Monday the 31st is the last trading day of july   

So July has 1 more trading day to live up to its historical higher month 2 out of 3 times in the past,


There's a good chance it will happen, US Equities rallied strongly overnight,

Oil dropped to the $73 level (would like to see it at $68 personally)

As for basemetals, looks like there will be a strike at the worlds largest copper mine =   for Cu Price, should take the other metals up with it

Also looks like Inco's bid for Falcon has failed with Xstrata poised to pounce
So will be interesting to see who goes after Inco, we know Phelps wants them and have put in a bid, but I wouldn't be suprised to see another major jumping in,


Monday should be a good day


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## swingstar (29 July 2006)

YOUNG_TRADER said:
			
		

> Monday should be a good day




I doubt a 200-point good day.


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## wayneL (29 July 2006)

nizar said:
			
		

> Growth slowing in the US will stop the FED from raising rates...
> Which means the bull is back for US equity markets and we get the follow-through effect...?
> 
> http://www.marketwatch.com/news/story/Story.aspx?guid={5AC8EB2D-72E1-4D66-8C50-3C0CFC4D3FD2}&siteid=




Lower growth is bullish?


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## YOUNG_TRADER (29 July 2006)

wayneL said:
			
		

> Lower growth is bullish?





LOL well during May/June/July Higher growth was bearish   


I'd replace the words 'lower growth' with 'easing sustainable consoldating growth'   

As far as I'm concerned, if the US economies growth eases it will take the premium out of the Oil Price and an easing of base metal prices, 

however for the base metals story strong underlying fundamental demand from the 'Chindiapan' trio (China India Japan, borrowed this pun form another forum psoter) combined with moderately easing growth consumption demand from the US and EU will keep a floor under the prices supporting the notion of a super cycle theory or a shift in the new long term avg, 

I understand the a slowing US consumption will hurt Chinese export goods but its econmy has been growing at break neck pace, so a slowdown to 5-7% growth levels would be good, also China has a multi trillion dollar trade surplus which it can quite easily use to finance its continued industrilisation (ie demand for commodities)

When you look at the big picture, decades of under investment in the resources industry comibined with the sheer inability to bring new projects on stream will ensure that stock levels of most base metals will remain very tight, the key is to steer clear of anything China is a net exporter of and jump on anything china imports, take a look at JML its going to take another year to bring its Copper/Zinc project online, then take a look at ZFX/BHP/WPL and any other major who has been trying to bring a large new project online, the key theme is delays, lack of equipment, lack of people and above all cost blowouts,

There is no way supply for commdities like Nickel/Zinc/Copper/Oil and especially URANIUM are going to be able to come online as quickly as has been predicted, these supply restrictions which have and will continue to result in tight production levels combined with strong demand for commodities will ensure that the Commodities Bull has many years left to run, the only way to de-rail it would be a global recession brought on by some sort of catastrophic event, Bird Flu, Nuclear War etc and if this was to occur, falling investment values would be the least of our concerns!

All in all, I see a long term prices
Zinc around $1.25-$1.75 per lb
Copper $2.50 - $3.50 per lb
Nickel, I can't say
Oil $60-$70 a barrel
Uranium $50-$100 per lb

My preferred Resource investment exposure is Uranium, then Oil, then Zinc then Iron Ore and finally Gold, however one cannot ignore Nickel and Coppers presence,

Until next time, stronger for longer!


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## nizar (29 July 2006)

wayneL said:
			
		

> Lower growth is bullish?




Yeh coz the way i look at things; dow/s&p500 go down and the reason seems to be due to FED raising rates; but since all those consecutive rate rises have now had a negative effect on the economy; the FED will stop rising rates; which means that growth will not be hampered any further and equity markets jump back up...

Probably the above is confusing but if u read the article ull know what i mean

My understanding initially was that; last year the FED raise rates 12 times and no1 trading asx200 seemed to care; but now all of the sudden; the whole world worries; now i understand that every1 is worrying (and this is seen through the volatility of the stockmarkets) because we are at a stage where more rate rises will slow the US economy (still by far the worlds biggest) - and this has been obvious through the slowdown in the housing sector; so if there are no more rate rises; then the bull is back ??

But of course u are more knowledgable than me, Wayne; would u care to elaborate or enlighten us with your thoughts and the way u seen things ?

Thanks


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## Nick Radge (29 July 2006)

I am led to believe that at the terminal point of every Fed tightening cycle since 1920, the market actually trades lower over the following 12-months. Go figure. Here is the quote:



> Since the Fed’s inception in 1913, the average historical DJIA return after the Fed’s terminal interest rate hike is negative (i.e., the DJIA goes down, not up), 4, 6, 8, 10 and 12 months thereafter. It’s fascinating to see how a consensus forms around what many seem to think is a logical outcome, a market rally following cessation of Fed rate hikes. These bullish analysts and investors however, are fighting the historical odds, as well as numerous other indicators that point to a continued market decline, which we discuss every month in our newsletters.


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## Smurf1976 (29 July 2006)

People have a tendency to categorise things in terms of the decade in which they occur. For example, the boom of the 1980's and 90's, stagflation in the 70's or even the great depression of the 1930's. And before that the "roaring 20's" boom.

So far, this decade has seen the US stock market (as measured by the Dow) go absolutely nowhere. Look at the S&P500 and it's down in nominal terms and down even harder in real terms (inflation adjusted). It would be hard to describe the Nasdaq as anything other than a crash in 2000 from which it has made only a modest, partial recovery. This is despite incredibly low interest rates and reasonable economic growth.

So far, this decade is shaping up as one where the US stock market went nowhere (heavy losses in real terms) and residential property prices have risen to an incredibly high level where yield is a joke.

Given that the Fed has a history of raising interest rates until something goes wrong, the question becomes one of WHAt goes wrong and WHEN. IMO either we'll see an end to the stock market being flat (ie it heads down) or the housing bubble bursts. The latter seems to be looking rather likely IMO once all those recent boom-era adjustable rate mortgages in the US reset at higher rates - something that ought to also reduce consumer spending with all that entails.

And then there's all the strife with terrorists, in the Middle East and so on. 

Bullish? I sure am. But not on broad stock market indices or residential property. Picking the opportunities rather than just throwing money at the market 1990's-style has been the winner in recent years and I see no reason for that to change yet. 

Markets swing from under valued to over valued as measured by p/e (or yield in the case of property). We've seen the over valued part but are nowhere near the under valued part of the cycle (yet). That day will come IMO.

All in my opinion of course. Do your own research before investing.


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## profithunter (30 July 2006)

Mark the 6th of August in your calendar, this is when I expect to see a key reversal in the market, from this point the xao should have a strong bull run for the rest of the month.


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