Wealth Within - Market Report 31 August 2010
The election is now over but we are still none the wiser as to the future direction of our country. Even when we do find out the result, it is certain we will have a minority government which could spell disaster for our short term economic growth. For the economy to grow business must grow, however, businesses need certainty before taking on the risks associated with expanding. We are now seeing many companies put off their expansion plans, which has a flow on effect for business borrowings, employment, and spending on infrastructure and other services. If we also consider that government projects, such as the NBN have been put on hold, the negative flow on effect into our economy could increase substantially.
Despite the recent economic conditions, there have been some good results in the current reporting season. That said if we are faced with a minority government over the next four years, which may have its hands tied or its policies watered down, we may well see a different picture unfold in the years ahead. Whilst I believe the possibility of Australia falling into a recession is low, this is not something we can ignore, especially since the US is looking more and more like a basket case. Given this, we need strong leadership and a strong government that can make decisions swiftly for the benefit of all Australians. Maybe we should go back to the polls? But with the absence of any real strong leader, would it be worth it?
So what can we expect in the market?
The All Ordinaries Index has fallen away over the past two weeks as expected, down by around two per cent from my last report, which is better than anticipated. Despite this I still believe the market is likely to fall away in the order of 10 to 15 per cent, which is consistent with what has occurred over the past 12 months. If this is correct, our market should trade down to around 4,000 points in the next few weeks.
That said over the past three trading days the market has closed higher with yesterday’s move representing the best one day rise for the past month. This could be an indication that sentiment is changing but it is far too early to tell with any great accuracy, and as such I will still err on the side of caution and assume the downward move will continue over the next few weeks.
Looking at the Dow, I believe it will also fall away with my forecast being that the low will be between 8,900 to 9,400 points in mid to late October. This is unlike the All Ordinaries index which I suspect is currently out of sync with the US, as the low for our market is more likely to occur between 13 and 20 September. The further our market moves down in the next few weeks the better the buying opportunities that will present over the coming months.
Until next time
Good luck and profitable trading.
Dale Gillham
Chief Analyst