Retail investors are attempting to grab a bargain in hopes of making a profit but this can create a false reality, according to Wealth Within.
An analysis by the firm’s chief analyst, Dale Gillham, said while some investors had been able to make a profit, depending on how the market unfolds this might not be the case in a few weeks or months.
“When investors profit from their decisions it creates a false reality, as the majority do not realise the ramifications of their decision to invest,” he said.
“Given this, they will, once again, attempt to bottom pick in an effort to beat the market, but history dictates that retail investors get it wrong more often and, consequently, lose a lot of money.
“…in my opinion, the decision to invest during this time was very premature, as the market was uncertain, very volatile, and extremely dangerous.”
Gillham said over the past four weeks, the Australian market had failed to push higher in a sign of indecision and a lack of direction.
However, since the market rose 3% last week, and had broken above the previous high of 5,618 points, Gillham said his opinion of the market was starting to change from bearish to bullish.
“I still believe caution needs to be exercised, as the emotions in the market are still running high and stocks are being punished on negative news. Therefore, the market could fall heavily on any negative news, so it will pay investors to be conservative and to only buy quality stocks,” he said.
“If the market is bullish, we will see the rise continue for the next two to three weeks with it likely to break above 6,000 points. However, if there is any weakness during this time, the good times that we have experienced in the last month may be over and we may need to get ready for the next fall.”
He noted the energy sector had been the big winner last week as it was up over 7% thanks to oil rising off historical lows, though he was not convinced the sector was bullish just yet.
“Materials has also had a good week with commodities rising and is up over 6% so far, while Information Technology is not far behind up over 5%,” Gillham said.
“The worst sectors so far include Utilities down almost 2% while consumer staples and healthcare are down under 1%, and financials is just in the green.”
