15pc fall likely in US, but no crash

TERRIBLE October has again continued to live up to expectations this week with the All Ordinaries Index (XAO) falling around 4.5 per cent.

Heightened fears of a correction on the US market saw heavy sell offs in tech stocks in the US, which rippled through to the Australian market.

A savvy investor is never fearful of a market falling, rather they embrace them for the opportunities they present.

If you are fearful when a market falls, it means that you lack a plan and the required knowledge. Remember, knowledge is the enemy of fear.

The Dow Jones (DJIA) and S&P 500 are now in negative territory for the year, with the NASDAQ just barely staying afloat. The tech-heavy NASDAQ suffered most, falling 4.43 per cent on Wednesday in the worst single day decline in seven years. So why did this occur?

The sharp fall in US stocks indicates fund managers are readjusting their portfolios and hedging positions to protect themselves from any downside risk. I initially expected the US market to fall 10-15 per cent from its peak and at one stage this week it was down around 9 per cent.

A fall of 15 per cent is still my target for the US market, although given the severity of this week’s fall I need to consider it may go as far as 20 per cent, but it will not crash.

We are now seeing the delayed effects of rising US treasury bonds, interest rate hikes, quantitative tightening and implications of the US-China trade war impacting many companies’ bottom line in Q3 earnings, which has helped push the US market further into the red.

So what does this mean for investors here?

Put simply, it means more opportunities and really good opportunities. Declines such as this in both the Australian and US markets are a regular occurrence, and it is the wise who profit from them.

I get excited at times like this because the bigger the decline, the bigger the opportunity to profit from the next rise. Remember, when the biggest and scariest news comes out, the bottom is nearby.

Right now, the Australian market is sitting perfectly in my target zone, in both price and time, for the low that I have been predicting.