Equity rally continues - advice on market timing, oil higher, Europe flat, US dollar weaker, ASX futures up 39

The good news keeps on coming for long equity investors & traders - US market strength led ASX futures higher and the support will likely take us into into new rolling 12-month highs again today. Just as it is dangerous for one to try and catch falling knives on the way down, so too is it proving perilous for those trying to pick a top and take profits in this market. Just look at the January performance of Australia's big four banks in today's first chart - NAB out in front with a 10%+ rally followed closely by the others, with a good chance that they'll end the day higher today. This 10% increase does shave 10% off the dividend yields if you're a buyer in today's market, and this issue is weighing on the mind of those who have additional cash to allocate to equities. Here are some common questions we've fielded recently along with suggested answers:

  1. I am a long-term investor who is fully allocated to equities right now, should I be selling? If you are a long-term investor enjoying high levels of yield from your initial entry prices, then you should only sell if you have to sell. One of the reasons that we rebalance one of the major components (Blue Chip Strategy) of the Rivkin Local Model Portfolio once per quarter is to set an arbitrary time so that the decision is made for us and we are not trapped by the emotional influence of having to time the market.
  2. I am a short-term trader who is fully allocated to equities right now, should I be selling? Every Rivkin Global member gets daily insights via technical analysis of the A&P 500 and ASX 200, among other key global risk benchmarks. Given the current dynamics at play (low interest rates forcing investors to plough cash into risk assets), it is a hard time to make your decisions based on fundamental analysis - you might be fundamentally right in your thinking, but the market might ignore how right you are for years. So I would suggest those who are attempting to time an exit consult our expert technical analysis via a Rivkin Global membership.
  3. I feel under-allocated; i.e., I have too much cash - is now the right time to buy? First, make sure you felt under-allocated BEFORE this latest rally popped its head up. Don't buy as a result of the fear of missing out, buy because you have a gap between what risk-free returns are giving you and what your lifestyle is costing you. If you feel confident that it is the right decision for you to add risk to your portfolio in order to benefit from the potential returns, then you should buy whenever it suits you, with little regard for what the market is doing (if you are a long-term investor), or take a technical view (if you are a short-term trader), as per the advice in point 2.
Just remember that timing the market is usually based on luck. Sure you'll hear plenty of stories of clever hedge fund managers who picked the top and bottom of various markets, but if you listen closely you'll hear a lot more stories of those who got it wrong. Just remember that, as a direct investor, you have the luxury of being able to sell your holdings and go to cash with one single phone call to a broker like Rivkin Securities. What a joy! Even during the GFC no single-day fall would have decimated your portfolio, so remember that even if you load up and feel uncomfortable in the future, you'll always have options.

Today's second chart shows the ASX 200 on a weekly chart throughout the post-GFC period. You can see that this latest rally is very, very sharp, but in general the ASX 200 hasn't gotten ahead of itself over the past six years or so. I'll reiterate once again, look to the 5,500-5,550 level as buying support that this market may eventually come back to rest on, but traders should stay long until we see a bearish close. 

Lastly I've shown the chart of the US dollar index - I'm loving the weakness here, and I've no doubt that US investors will be calmed by the recent break in the rally. It is buoying the AUDUSD pair, which is now holding US$0.78 despite Tuesday's rate cut.

Traders take note: The RBA's quarterly statement on monetary policy will be released at 11:30am today - let's see what the Bank thinks of domestic and international economic conditions. Also US non-farm payrolls are out tonight, expect some volatility in FX and equity markets.

Today’s charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

Upcoming economic announcements: RBA statement on monetary policy at 11:30am, Canadian employment report at 12:30am, US employment report at 12:30am, all Sydney time.

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