Irrational exuberance 3/4/06

Real heat in the market today. I sold a lot and I may regret it tomorrow - but I feel sure I can buy them back cheaper in the reasonably near future. There has to be buying days.

But the strength today took my breath away.

4pm close at XAO 5125.0/XJO 5172.3.

 

Hmmmmm. You may / may not be right!.
But XJO is getting stronger !!

 

BHP up over 3% today. How many points of the index rise did it contribute I wonder?

On a PE in the mid 14s is that too pricey for the Big Australian? Commsec EPS forecasts show things flattening off and declining from 2006-2008...Is this as good as it gets for miners?

Don't know...just grist for the mill.

to paraphrase Troppo " " .

Cheers
N.

 

Nigel,

" BHP up over 3% today. How many points of the index rise did it contribute I wonder?"

It may push up the market.
Also gold is pushing...You may be able to check it using Advance/Decline Line (if you have got in your software)
And I think that as long as gold is up and few big stocks - market may still go up.
Today XJO broke my last level 5179 (by 1.5 points). I have got two more numbers - but it's hard to belive that we may hit them without a pull back.
Also XJO broke up 3 years resistance line (weekly chart), which indicates growing strength .

So .... stay cool and count zeros in your bank account IF you are trend follower + =

 

XJO weekly graph.

A-B = Mar05-May05 pull back.
C-D = Oct05 pull back
E = XJO hit resistance line.

 

Tropo, Mark and others,

Am I still the lone voice on "strong sustainable" market, or are you guys willing to concede and come over to the bright side? Last dialogue we exchanged I think Tropo suggested we might close the year at 5250, I'm still bullish and reckon that's definately achievable if not a lot more...

Seriously, I'm not playing the "I'm right / you're wrong" game, but I will refer you back to this thread and stand by my arguments:

http://www.invested.com.au/forums/showthread.php?t=741

I seemed to cop a fair bit of criticism for that view, but think there is some strong macro-economic fundamentals as to why the ASX is so strong at the moment. There is a LOT of legs left in this bull market, mark my words!

Oh yeah, I'm not sure if I posted it here or at SS, but I mentioned months ago that BHP could go to $42 and RIO to $110 odd. That was based on a UBS analyst's report that suggested those were the prices that were justified based on adjusted earnings forecasts taking account of "current" commodity prices. Any upside to commodity prices makes those share prices conservative. Mark my words again that the comments by President Weng yesterday that they'll "let the market set the price" indicate there is upside to the iron ore prices in the next round of negotiations with China. BHP at $29 is still a bargain.

I'm not an "unbridled optimist", I tend to consider myself a "fact based realist". Its just that the facts are telling me we've got a long way to go yet. Get on and enjoy the bull ride! Sure there'll be pullbacks, but the trend is my friend...

Cheers,

Michael.

*edit* XJO opened up this morning to around 5210. BHP is up to $29.50. At this rate we'll see 5250 this week... *end edit*

 

Nigel,

Answer on the front page of the Market Wrap in today's AFR. +17.1 points of the +50.8 of the XJO is entirely attributable to BHPs gains yesterday.

As an aside, if NavTrade is still holding BHP I'd expect a decent lift from that stock, but unfortunately I think the fund is underweight that stock...

Cheers,
Michael.

 

It does not matter what "gurus" or Weng are saying.
We may have quite a bit to go but at this stage of the game all we can do is to enjoy the ride and .... speculate.
My number/s for this year were 5350-5400 not 5250.

Next levels: 5224 and 5265

 

Tropo,

Can you share your "methodology" - i.e. the way you calculate those numbers?
And what those numbers indicate to you?
How do you use those numbers in your trading?

Thank you.

 

Tropo,

That's where we disagree my good friend. You look at charts and extrapolate. I look at the drivers of the market and extrapolate. What Yen says does matter. It directly impacts the profitability of some of our major exporters, and by extension their share price.

Share prices don't operate in a void, but are a product of the profitability of the company you are holding an equity stake in.

PS You did post 5350-5400 as your full year view, so my apologies for the 5250 mis-quote. Its all a game anyway...

Cheers mate,
Michael.

 

That's where we disagree my good friend.

Hey.......nothing wrong with that !!!!!!!

I do not extrapolate!. I calculate most of the time.
Majors exporters can push the market up but to some extend only.

"Share prices don't operate in a void, but are a product of the profitability of the company you are holding an equity stake in".
Are we talking here about Telstra, Enron, Qintex, Bond Corporation, HIH etc?

It's a lot of different answers to the question what is a price.
The price of stock has little to do with the company it represents. Price is the kind of cross between supply and demand.
The pattern of price and volume reflects psychology of the market ( buyers/sellers).
Profitability of the company is not always the reason for rising price. If fundamental analysis were correct than every piece of info would/should move the market in a given direction. What happens in the market, is psychology of every individual market player, and profitability of the company has not much to do with it (eg. dot com companies few years ago).

 

Tropo,

I agree with a lot of what you said there. Yes, the stock market price movements are largely a product of investor sentiment, fear and greed, because they are "imperfect" marketplaces. If they were "perfect" marketplaces then prices would reflect future earnings potential. So, in a way, both approaches should work. I am a fundamentals guy and like to look for "value" whether that be a specific stock that's undervalued based on earnings potential, or whether its a specific market such as the ASX due to the macro-economic outlook. But I do also consider the fear and greed bit and look out for bubbles forming.

I basically allocate my cash to markets where there is value, and pull it out when they over-shoot their fair valuations. At the moment I think the ASX is still under-valued and there is more to run. When I think it has gone bubble then I might consider re-allocating my dollars into other markets.

In fact, I already see value in Asia and in Japan (to a lesser extent) so am putting some money in those markets. I don't see much value in the Sydney residential property market so am being very selective in that market at the moment.

I think fear and greed distort the markets and we need to be aware of this, but value is the long term determinent of the "direction" of the market as a whole. As I posted before, the trend is my friend...

Here's Dr Oliver's latest view last month on the ASX:

http://www.amp.com.au/display/file/...6,00.pdf?filename=olivers_insights_010306.pdf

Cheers mate,
Michael.

 

Michael,

Good luck with your fundamental approach !!!!. I am TA person.
Yep....Trend is your friend

 

I essentially am a believer of the bull run, I believe it is running on fundamentals. But the drive since 5000 points is coming on a little too quickly for my liking. I think if we look at Tropo's resistance levels we're seeing the upper resistance level being touched at the moment. I was thinking 5500 - 6000 by Christmas, but the way it's gone since 5000 says to me we'll be there by EOFY. And that's crazy!

 

"....but the way it's gone since 5000 says to me we'll be there by EOFY "

I like your sense of humor

 

Maverick,

I have been asked almost the same question few times on this forum.
Again, I use all sort of tools (trend lines, resistance&support line, pivot point, patterns, Fibo etc) to calculate the next resistance/support level (I think it is hard to explain here). Sometimes I use projection as well.
It all depends what I see at the moment on the screen. As you see my method/system has nothing to do with fundamental analysis.

Basically, if calculated level is broken up (resistance in this case) next number is calculated. The same in case when market is pulling down (if support line is broken). Each of this numbers (levels) represent point where market may stop and move sideways or pull back/move up.
If this happens profit is taken (depends how much market pull down from calculated resistance level) and new game starts all over again.
I do not trade Stock Market for quite some time, but the market I currently trade I use very similar method/system including different time frame.

 

XJO closed at 5248.6 today. Up about one and a half percent (72.9 points).

Tropo,

What's your next level or are you still on 5265?

I'm still bullish and resources continue to perform as I posted they would. I still value BHP conservatively at $42 and reckon the market has more legs than most people realise. I'm happy to be the sole voice of optimism though.

Enjoy.


Michael.

 

Hi Michael.

ASX200 up over 70 points yesterday and the DOW now up almost 200 in overnight trading!

Looks like we have another nice (very profitable) day ahead.

 

Alan,

Its 9:59am by my computer's clock now and I'm online waiting to watch the market's open. It should be a very interesting day indeed!

The market is starting to feel a little bit irrationally exuberant, but we all know that bull runs typically outrun fair value so its not unexpected. I put fair value above 6000 so think we've got a long way to run yet.

But I don't mind being the sole bull voice in a forum of bears!

Cheers,
Michael.

PS Tropo, XJO is now over 5300, so what level have you got for us now. 5265 just got blown away too...

 

Yep.........it may just be my risk profile but I'm MORE than happy to be selling into this rising market. If my return is a bit less than the Index for now, I can live with that situation.