Here's a salutary lesson for anyone who wants it. I've been run over trying to short the SPI now one too many times. I've lost a considerable amount of money, and had my confidence as a trader severely tested.
At 3700, I've reveresed my view, and am now running with the bulls. Of course it could be too little too late. I might be just setting myself up for another run of losses. But I doubt it.
Equity markets are irrational things. The ASX is bullish. Extremely bullish. It is probably heading towards overbought levels, at least short term. But then overbought has little meaning in terms of a wild bull rally.
I've come to the realisation, too late, that equity markets are little more than a sponge for loose capital. They are liquid, and generally profitable. There's an old saying: follow the money, and the money's heading into Australia and Australian equities.
Let's look at the reasons why:
Superannuation Funds Pension Plans Billions of cash reserves held by China A recent property boom Speculation of less interest rates
Then there are the fundamentals:
A boom in commodity stocks and Chinese/Asian demand High dividend shares still available at reasonable prices
And also the political/emotive reasons:
Johny/Bush are going to win ... Australia seens as "safe" nation.
Let's face it, Australia is resource rich, and well placed regionally. The amount of money now in Asia (having been running trade surpluses with the US for some time now) needs to find a home, and the associated development boom there needs Australia's raw materials.
The SPI's had a 1 year rally and is now at 3700, a record high. So what. I won't be surprised to see 4000 by year's end or early next year. Sure, from a cyclical perspecitve, bond prices might be heading lower, but there's not reason why equity can't continue there run, perhaps even for another year.
