Wealth Within - All Ords Report 17 July 2007
Last week Bankwest announced it was going to open 160 new branches across the east coast of Australia in a bid to take on the big 4 banks. It also announced it would lower fees in an effort to undercut the other banks in their efforts to take business from them. In my opinion it is about time that someone took on the major banks simply because for too long consumers have been paying more and more in fees whilst the service they have been receiving is diminishing.
Given the number of buyouts, takeovers, and merges in recent times, I believe this is not the only area where we need more competition. As we are well aware, there are virtual duopolies in groceries with Coles and Woolworths, in petrol with Shell and Caltex and to a large extent in the telecommunications area with Telstra and Optus. From an investor’s point of view, it makes these companies attractive to own as their profit margins are generally higher and their share price growth is more stable. But from a consumer’s point of view, the deal is not that great given that we end up paying more for basic necessities. I wish Bankwest well and hopefully they will have the same success that Virgin did in breaking the Qantas monopoly so we can all enjoy cheaper bank fees.
So what is happening in the market?
Over the past three months the market has unfolded in a protracted sideways movement, which has presented one of the most challenging periods I have ever experienced in predicting the short term movements of the market. During these times, it is always good to assess what we know rather than what we think. And as we know, the good times never last and neither do bad times and so it is with sideways movements. Generally, markets move in a sideways pattern for periods up to 3 months; therefore I am expecting the market to break out of its sideways move soon.
Last Thursday the Dow rose strongly and while I don’t subscribe to the theory that our market follows the Dow, it did rise strongly on Friday the 13th of July to break above the previous all time high creating a new high at 6469.20. Normally this would indicate strength but following the high the market fell away to close at 6425.40 indicating there was some weakness in the market.
As I have previously indicated, unless I see a strong move above the all time high I don’t believe the market can continue its bullish run in the short term. For the market to prove it is still bullish it would have needed to trade up but instead it has continued to show weakness by pulling back over the last few days. While I do believe there is a higher probability that the market will continue to fall away, there is still a possibility it will trade up as it has not confirmed whether it is bullish or bearish at this point in time. Given this, it is better to be conservative right now until the market breaks out of its sideways move.
Until next time
Good luck and profitable trading.
Dale Gillham
Chief Analyst
