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Australian All Ordinaries Index Likely Lower Later

|Includes:iShares MSCI Australia ETF (EWA), KROO

History tells me the Australian All Ordinaries will be lower than it is now within 6 months

In every recovery from 1984, the All Ords has been lower, in terms of percentage recovery from the bottom, later in the recovery than it is now.

While I sometimes fear that I am missing rallies I have been biased to a lower market since November 2009 (except for 2 weeks where I lost by going long too early) and I am ahead from this strategy because the bond fund I am in has had better returns while the Australian All Ordinaries and S&P200 has fallen.

My change in weighting in November was based on the extraordinary growth in the market from the bottom - the "too far, too fast" hypothesis.

Note that the market is still well above the average of all these recoveries and also all the average of all recoveries other than from 2003.

I think the fundamentals of reducing stimulus and higher Australian interest rates, support the historical view, although there is the possibility of a bounce based on the election results - but both parties are committed to reducing the Federal budget deficit and getting back to surplus in only 3 years, so that tightening, if actually pursued, will likely have a dampening effect on demand.

So while I may trade shorter trends, I expect the All Ords (and Australian S&P 200, EWA, KROO and most major Australian stocks) will be lower within the next 6 months.

Here is my graph of the recoveries since 1984. (Data from Yahoo Finance).

(Click for larger graph)

All Ords Lower Later

Disclosure: 30% in stock market through emerging, commodity, Australian and international funds, 70% mixed bonds (plus Australian real estate exposure)

Stocks: EWA, KROO