Sharemarket bulls on way to abattoir

The bears may not be roaming the forest in great numbers yet, but the bulls are almost certainly on the way to the abattoir.
The 12-session losing streak on the Australian sharemarket that culminated this week in a bloodbath on Tuesday - wiping more than seven per cent or nearly $100 billion off its value - marked the end of a long run upwards.
Investors now face a period of volatility and uncertainty, after a 20 per cent-plus fall in the equity market since its all time peak in November last year.
"The normal indications of a bull market have broken down," AMP Capital Investors chief economist Shane Oliver said.
"The 20 per cent-plus fall, plus the fact that we went below August's low suggests to me that the bull market is over."
Brokers says a bear market looms, even though the stock market has made up most of Tuesday's losses.
"We're now no longer 20 per cent down from the top , and if the market rebounds and goes back up again, most people will look back and say: `that wasn't a bear market, it was just a fall'," Dr Oliver said.
"But it's more severe than a bull market correction.
"I think we're in for at least another six months of tough times ahead on the share market."
Dr Oliver said markets around the world that were pummelled on Tuesday, on fears of a recession in the United States and a consequent slowdown in global growth, were oversold.
Global stock markets are now experiencing a bounce upwards, following the surprise decision by the US Federal Reserve to cut interest rates by 75 basis points to calm jittery investors.
"If it is a bear market, it is quite normal to have quite sharp rallies," Dr Oliver said.
"These bounces can be quite sharp - five to 10 per cent - then the downturn resumes again.
"I think we will see the market come back down to the lows we saw on Tuesday in the next few months and possibly go a bit lower."
Even though the US Federal Reserve's action is supportive of growth in the US, it might not be enough to stop a downturn.
The flow of economic data coming out of the US, European and Japanese and other Asian economies over the next few months was likely to be negative, ensuring a rough ride for sharemarkets.
The local market's key focus going forward would be on the US, but if Asia also softened markedly, Australia would be vulnerable, simply because Chinese demand for resources has been a great driver of the Australian economy.
Confidence could return in the second half of the year as the impact of the aggressive easing of interest rates was felt, and interest rates in Europe and Japan were also likely cut.
"And then we'll start to see a sustained rally through the second half of the year in anticipation of better economic growth through 2009," Dr Oliver said.
The Australian company reporting in February and March may give the local bourse a lift, but was likely to remain a sideshow to events in global markets.
"It will have an impact though on which companies do well," Dr Oliver said.
"A lot of stocks out there have been massively and unfairly sold."
A potential interest rate rise in Australia after the release on Wednesday of higher-than-expected inflation figures, could also adversely affect the Australian share market.
Dr Oliver said the high inflation rate suggested there was a strong case for a rate hike by the Reserve Bank of Australia (RBA), but the deterioration in the world economy could not be ignored.
"It knows that that will have some impact on Australian growth say in 12 months' time, and that in turn will help take some pressure off inflation," he said.
The RBA would also take into account recent decisions by Australia's major banks to raise their variable home loan rates by more than central bank movements, to offset higher funding cost.
"I think the RBA is between a rock and a hard place, and I have a leaning towards them leaving rates on hold and waiting for the next meeting to see how global conditions unfold," Dr Oliver said.
Professor Robert Brooks of Monash University's Department of Econometrics and Business Statistics said the stunning falls on the Australian stock market and other global markets this week had complicated the outlook for interest rates.
The inflation data released this week would have reinforced the RBA's predisposition toward another rate increase.
"The factors that would moderate a rate increase are the turbulence in international financial markets, the fallout from the US sub-prime issue ... and the increase in the cost of funds for the banks and in particular the non-bank mortgage providers," Prof Brooks said.
Prof Brooks said the RBA would want to look at the effect on the housing market of the rise in variable home loan rates earlier this month.
"If they can get some data on that, if there's some choke-off in demand - that's going to be critical information," he said.
"I think they will look a little bit at the financial markets.
"The markets are going to be volatile and have ups and downs between now and when the RBA board meets.
"They'll want to know what financial markets are doing, what the housing market is doing ... the inflation pressure is still a big issue.
"The possibility of a rate rise in February is mixed.
"It could go either way."
Prof Brooks said while the US sub-prime mortgage crisis had spurred volatility in stock markets, investors shouldn't be surprise by whippy trading conditions.
"When they get in real trouble is when their liquidity disappears," he said.
"Prices falling show you that there is not liquidity at where the prices were yesterday, but the fact is that markets in Australia and the US and other developed countries have stayed liquid.
"There's still been institutional investors and other investors looking for bargains when the market falls."
Prof Brooks said stock market volatility served as a reminder that there were risks associated with the pursuit of high investment returns.