Wealth Within - All Ords Report 11 Sep 2007
While I don’t subscribe to the theory that the Australian market always follows the Dow, I do agree it will react when major moves occur on the Dow. This is particularly the case when there is a large down movement on the Dow, although our market tends to fall to a lesser extent in percentage terms - but this has not been the case in recent times. Let me explain.
The All Ordinaries index peaked on 13 July at 6469.20 points, whilst the Dow peaked on 17 July at 14,021.95 points. The Dow then proceeded to fall for 22 trading days and 10.73% while the All Ordinaries Index fell over 24 days and 15.12% into a low on 16 August. Up until last Tuesday (4 September), the Dow had risen 7.80% in 12 trading days, whilst the All Ordinaries Index has risen 15.80% in 14 trading days up to last Wednesday. This proves that the All Ordinaries is much more volatile than the Dow at present. That said the Dow is not looking strong and there is a high probability the US market will have further falls; given this it would be wise for investors in the Australian market to be very cautious right now.
So what can we expect in the market?
The strong rise out of the low on 16 August resulted in price moving one to two per cent above my original target of 6200 points, although we are now moving into a crucial time period that will determine whether the current rise is sustainable. As I have previously indicated, for the market to be bullish it needs to rise for at least 4 to 6 weeks and as of last Friday it has only moved up for three weeks. If the market is going to fall it will most likely do so this week although there is still a possibility it will rise for another 3 weeks and then fall away. It is also possible that the All Ordinaries could make a new all time high, although I believe this is highly unlikely.
Historically September is the worst performing month on the Australian share market and I don’t believe we will see any difference this year given that I am expecting the All Ordinaries to fall away into a low around 5000 points in the not to distant future.
Given this, how should you manage the current market conditions? The most important trait a trader or investor can have is patience. I have seen many people get tired of watching a share move sideways and down, only to sell the week before the share starts to rise. Or they sit back and wait, and then buy into a share that has already risen strongly only to find that the share falls away shortly after. As individuals, there is often a tendency to want things to happen now and for our shares to rise all of the time, and we get impatient when they don’t.
There is also a misguided belief that as traders, we should always be buying and selling; however, let me say there are times when you should trade and times when you need to be patient and right now I believe it is time to be patient. Until the market decides on a definitive direction I believe you should take a wait and see approach as there will be some great buying opportunities in the not to distant future which will be in less volatile and risky market conditions.
Until next time
Good luck and profitable trading.
Dale Gillham
Chief Analyst
