No Comments Written by Anthony Truong on April 5, 2008 – 12:34 am

Question: At present, the markets seem to be thinking “too positively”, and even the Daily Reckoning is starting to cast doubts on its own “doom and gloom” predictions, especially with the way gold is performing (some parallels to your count). I think (unless I’ve misinterpreted their opinion) that the Daily Reckoning believe it’s time to buy into energy and resource stocks again (specifically, small cap stocks that have been oversold), as they subscribe to the notion of continuing global demand for commodities/resources, particularly by the BRIC (Brazil, Russia, India and China) nations. There’s this sentiment that although Australia will be affected by the US recession, it wont be nearly as bad as has been predicted; I know what you’re thinking about this statement, but if the Daily Reckoning is starting to entertain such thoughts, then…?

Answer: You cannot base your investment decisions on only one source of (contrarian) information; subscribe to as many newsletters and financial commentary as you can, before you make any new buy or sell decisions on your portfolio.

As I half-expected, the ASX has moved up quite strongly, taking out 5500 and 5600 quite easily (although it has slowed down since). I’d be looking to offload positions if I were you; there would definitely be more upside to come, but how much we’re not sure. It might be a blip, or 200 points; who knows? But it’s always better to be safe than sorry. If you have any positions that are close to break-even or lucky enough to be profitable, I’d exit. I continue to have a bearish view overall; markets are still down significantly since their October/November 2007 peaks. In bear markets, we always get these strong countertrend rallies, when most analysts will proclaim that the worst is over and that a new bull market has begun. It always works perfectly to suck in the last few investors who have yet to experience major losses, then everything will tank in the 3rd wave down. Whether or not we’re in a 2nd wave up is debatable; like I said in my update, I think US markets are within a large 4th wave triangle, which is a part of an even larger 1st wave down of this new bear market. Believe me, it’s only just started so do not start being swayed by a sudden swing in sentiment at one newsletter source. The fact that they are suddenly changing their views shows that they too are susceptible to crowd psychology.

In bear markets, fundamentals go out the window; so you can talk about BRIC and resources and commodities as much as you like, but when people get scared and run for the exits, none of that matters. You’ll be left holding paper that is worthless. Start being conservative!