Now not the time to buy shares

During the worst of the sharemarket correction in August, calls on margin loans hit their highest point in six years. Most were able to make up any shortfall in their position with cash but CommSec's general manager of quantitative research, Ron Bewley, has warned that investors should think carefully before using borrowed funds to bet on a sharemarket rebound. Mr Bewley said that the Australian market, as measured by the S&P/ASX 200 Accumulation Index, is well into an exuberance bubble and investors who plunge themselves into the market are likely to face another correction. CommSec's volatility index showed its eighth consecutive positive return last week and the exuberance measure stood above 6 per cent, a level which has previously triggered corrections. “As far as its potential for another correction is concerned, the market is now in a danger zone,” said Mr Bewley. Investors would be better off waiting for the correction to occur and buying stocks at lower prices than can be had today so that they can benefit from the rally that would follow.

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