Have we come to a "correction" point?

Maverick__ · 15th May, 2006

Market braces for sharp decline

INVESTORS are readying for a sell-off today amid mounting fears the sharemarket faces a correction of up to 15 per cent in the coming months.

The sharemarket has rallied almost 12 per cent since the start of the year, but some market watchers warn traders, hedge funds and speculators could "run for the exit" should base metal prices "lose altitude".

The market benefited from the federal budget and strong company profits last week, but analysts expect it to fall by up to 80 points today after markets in the US and Europe slumped up to 2 per cent on Friday night.

Surging prices for gold and base metals such as copper, nickel and zinc, which traded at record highs last week, have underpinned the strength in resource stocks and the broader market this year.

But Goldman Sachs JBWere analysts warn of a big resource sell-off and predict commodity prices could fall up to 20 per cent in the next few months.

"Anyone out there who seriously is even contemplating spot numbers as a reason to buy resource stocks right now needs to have a long hard look at themselves," Goldman Sachs analyst Richard Coppleson said in a research note.

"Yes we are in a commodity boom that will last for a number of years, but in the short term anyone who is very overweight resources is skating on thin ice," he said.

The period between this month and September is usually the most volatile, giving market watchers the confidence to forecast a correction of between 5 per cent and 15 per cent over several months.

AMP Capital Investors' head of investment strategy and chief economist, Shane Oliver, said the chances of a correction similar to that of September and October last year, when the market shed about 8 per cent, was high.

"I think the risk of a correction is quite high. Every man and his dog seems to be talking about a correction right now," he said.

"We are now in a period that is normally rather tough for markets."

While potential triggers for a correction exist, such as concern about further monetary tightening in China, hikes in interest rates, bond yields and oil prices, Dr Oliver emphasised that it would not precipitate the start of a bear market, and fair value for the Australian market remained at 5700 points.

He said he expected the market to shed up to 80 points this morning due to the lead from overseas markets.

"I think it seems pretty likely that we are going to have a rough Monday," he said.

Building products company James Hardie begins another busy week for equities, releasing its full-year results today ahead of Macquarie Bank's tomorrow.

Sugar refiner and building products maker CSR will issue its results on Wednesday, less than a week after chief executive Alec Brennan announced he would hand over the reins to a successor next year.

But Macquarie Equities' private client adviser, David Halliday, said investors' attention would be on commodity prices rather than company earnings.

"Commodity prices are going to be the drivers for the week that is really where people are focusing their attention," he said.

He agreed the market was likely to suffer a fall of up to 70 points today, but remained bullish about the longer-term outlook.
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What are your thoughts about this?

Tropo · 15th May, 2006

Maverick said:

Market braces for sharp decline
What are your thoughts about this?
Click to expand...

So far we have got nice sell off today...
Apart from that, market is still in the up trend.

Interesting article:

Warren Buffett Sells the Family Silver

St. LOUIS (ResourceInvestor.com) -- With the market abuzz with anticipation of what Wall Street legend Warren Buffett intends to do with Berkshire Hathaway?s $40 billion in cash, a small, but perhaps very significant little bit of news may have been overshadowed.
At the company?s shareholder meeting in Omaha, Nebraska on Saturday, Chairman Warren Buffett announced that the company has divested its silver holdings.
David Morgan, author of ?The Morgan Report,? sent a note to clients quoting an anonymous source at the Berkshire meeting who confirmed the sale.
According to the source, no sell price, date or addition data were given other than the announcement that the company not longer owned any silver.
The source said Buffett didn't really talk about silver other than he sold it, but said he would rather hold businesses that have earnings.
According to news sources today, Buffett told shareholders, ?We had a lot of silver at one time but we don't have it now.?
In 1997, Buffett purchased an estimated 130 million ounces for delivery in 1998. In February 1998, the silver price jumped to a high of $7.81/oz, rallying 50% since mid-1997.
The CPM Group estimated earlier this year that Buffett still held somewhere between 100 and 129 million ounces.
Buffett said that Berkshire had not benefited from the particularly steep rise in silver prices.
?I bought it very early, I sold it very early. Other than that it was perfect,? he joked.
Silver hit a 23-year peak of $14.68 two weeks ago. On Friday, July silver futures closed at $13.89 an ounce.
Buffett said he detected speculative participation in the recent run up in prices, particularly metals.
?What the wise man does at beginning, the fool does in the end... any asset that has a big move based on fundamentals will attract speculators...,? he said, according to sources.
?Something like copper is speculative on both sides of the market, and responding more to speculative than fundamental forces,? he added.

PS - and this ...

Commodities Big fall???

The sharp sell-off in the ZAR today could be a warning flag for the AUD and the dollar bloc currencies given the ZAR link to gold and commodity prices with the Rand losing more than 2% today. The blast in Nigeria may have aided the sell-off but traders are also increasing worried over commodity prices, adopting a new buzz-word "parabolic" to describe the rocket-fuelled gains in metals lately. Fears of a sell-off in the commodities market are growing as are warnings from analysts. Access Economics and Canadian banks have warned of the risk of a large price correction. Today"s Chicago Tribune notes concerns from Cargill, Warren Buffet, Prudential"s Ed Keon and Merrill Lynch"s David Rosenberg.

Base metals continue to stall today after the sharp gains and any deep correction in metals prices are likely to be felt strongly by the AUD.

perky · 15th May, 2006

About time it started to correct. I was starting to doubt myself!!
I made that prediction last month it would happen early in May. Not counting my chickens yet, but today is a good start to "the correction we had to have".
Let it happen, and then we can all have some fun

-T- · 15th May, 2006

Hey Perky, do you mind me asking what you mean by 'have some fun'? Do you mean buying cheap or trading short?

So do you guys really think a correciton is coming right now? I know it's all speculative, but interesting nonetheless. I won't be surprised if it recovers (if you can call it that) tomorrow.

perky · 15th May, 2006

Buying quality blue chips cheaper.
I would love to see BHP come down to say $27 or so, and WBC to perhaps somewhere below $23.
This is not intended as advise btw...just IMO
I would like to see Tropo's resistance levels for XJO and XAO.

Tropo · 15th May, 2006

perky said:

Buying quality blue chips cheaper.
I would love to see BHP come down to say $27 or so, and WBC to perhaps somewhere below $23.
This is not intended as advise btw...just IMO
I would like to see Tropo's resistance levels for XJO and XAO.
Click to expand...

Perky,

I did not run numbers as yet but approx. levels =
Resistance (XJO) = 5407/10.
Support (XJO) = 5170/80 & 5100/10 & 5028/35
If XJO hit 5030 (+ - 25 points approx.), BHP may hit $27 (approx.)
PS:
One more ....The market can stay irrational much longer than a traders/investors can stay liquid

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Have we come to a "correction" point?

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Have we come to a "correction" point?

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