Australia’s personal wealth has been hit hard over the past year, which in my opinion has been attributable, in part, to hedge funds forcing share prices lower through short selling. Last weekend ASIC announced a ban on naked and covered short-selling of all securities, managed investment products and stapled securities, which I believe is a good move as better policies need to be adopted to protect the integrity of the market.

That said I don’t believe the issue lies with the principle of short selling as this provides liquidity for the market, but I do have a problem with the lack of transparency in regard to short selling. Currently anyone who takes a large position is required to declare it to the market, but the same rules do not apply for short selling. Given this, large hedge funds have been able to continually force prices down anonymously without any recourse. The end result, as usual, is that the average Australian loses whilst the big end of town profits.

The good news, however, is that the government released draft legislation this week that will require the disclosure of covered sale transactions in the Australian market. If this legislation is passed, it will go a long way to reducing the extreme volatility that we have experienced over the past 12 months.

So what can we expect in the market?

Last week was one we would rather forget, with the All Ordinaries Index falling heavily to a low of 4575 points. The positive news is that following the announcement of the $700bn rescue package by the US government, the market moved up 4 per cent to regain some lost ground by last Friday.

The upward momentum continued on Monday with the market closing up another 4 per cent to 5050 points, which was possibly due to institutions covering their short positions.

For the market to continue to rise from here we need to see a real change in sentiment, although in the short term I believe the uncertainty is likely to remain. Given this, I expect the All ordinaries will most likely trade sideways during the next week or two while the market digests the impact of the US rescue package and the outcome of the ban on short selling.

Dale Gillham
Chief Analyst
Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.

For more information please visit www.wealthwithin.com.au

There is an age old industry adage that implies the simplest way for mum and dad investors to build wealth when trading the share market is to dollar cost average. The methodology requires you to make regular investments regardless of the direction of the market or the stocks you are trading. However, in my opinion this strategy is fundamentally flawed as it ignores one of the most important principles of investing, which is to manage risk.

For example, had you invested $5,000 in shares every quarter from the beginning of the bull run in March 2003 to the present day, without consideration for the direction of the market, your investment would have generated an annualised return of around 6.6 per cent p.a. On the other hand, had you decided to exit the market at the end of January this year, in order to manage risk, you would have annualised a return of around 16 per cent p.a. It is for this reason why I advocate the importance of ‘timing the market’ as opposed to ‘time in the market’.

So what can we expect in the market?

The All Ordinaries has been extremely volatile over the last couple of months given that one week it appears as though the market will break above resistance at around 5200, while the next it looks like it will break through support at 4880. Last week I believed the sideways consolidation would hold to create base support for the next move up. However with the collapse of Lehman Brothers and the $85b capital injection by the US government to keep AIG afloat, my opinion has changed in the short term.

As a result of the US crisis the Australian market has experienced a sharp decline, which has broken the 4880 support level. As you will remember from previous reports the next level of support is around 4300 points, which is very strong and I am confident that the market will find support between its current level and this next strong support level. With the US election only weeks away, we can reasonably expect the US market to move into a holding pattern until there is certainty about who will control the country, which is likely to settle our market as well. As always, it pays to be patient and to only enter the market when it indicates that it is safe to do so; until then I urge all investors to sit tight.

Dale Gillham
Chief Analyst
Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.

For more information please visit www.wealthwithin.com.au

In July 2008 a number of experts were forecasting parity between the Australian and US dollar, however, since then the Australian dollar has fallen to below 80 cents US, which represents a discount of nearly 20% on the exchange rate. So what drove the disparity and what does it mean for the Australian consumer?

The Australian dollar is a commodity-based currency, which means the dollar will rise or fall inline with the price of commodities. Consequently, the fall in Gold (-21.5%) and Oil (-30%) over the past two months has caused the Australia dollar to fall. The good news, however, is that I believe these commodities will find support and rebound in the not too distant future, which means we should see the Australian dollar rise.

What does this mean for Australian consumers? Firstly any travel to the US in the near future has become 20% more expensive. But more importantly the cost of oil has not really decreased due to the fact that it now costs more to buy oil as a result of the disparity. That said the operational costs for Industrial stocks are likely to have decreased due to the reduced costs of some inputs, which can hopefully be passed on to consumers by way of lower prices.

What can we expect in the share market?

I have indicated previously that predicting the market on a weekly basis can be a risky job, as the market will do what it wants to do and not what I would like it to do. Apart from Monday, the market has traded down this week rather than up as I expected. That said as at close of trading last night (Thursday 11 Sep) the All Ordinaries was only down 1.5% for the week and it is quite possible that the market will trade up on Friday to close higher for the week.

Despite the continued volatility in the market over the past two weeks, I still believe it will rise up to challenge the 5200 point level over the next two weeks. I am confident that once the market closes above 5250 it should start to rise steadily and shake off the recent erratic behaviour. As always nothing is set in concrete. Even though probability suggests that the market will rise, we still need to be prepared in the event that it doesn’t. Given this I recommend that you wait until the All Ordinaries moves through, at least, the 5250 level before buying any stock.

Dale Gillham
Chief Analyst
Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.

For more information please visit www.wealthwithin.com.au

Despite oil prices falling around 23% over the past two months, we are still paying high prices at the pump. The reason for this is that the Australian dollar has also fallen around 14% against the US dollar during the same period, which has effectively eroded any benefit from lower oil prices.

If the price of petrol is to fall, we need oil to continue its downward trend and the Australian dollar to stabilise or rise against the US dollar, which I believe is likely over the next few months. That said I expect oil will find support around $100 or slightly below before rising up to test the previous high early next year, so if petrol does fall it many only be short lived.

What can we expect in the share market?

While the market was bullish for more than a week, it has fallen heavily over the last three days as investors react to the pull back on the Dow. In my last report I indicated that I expected the market to continue to rise for the next 1 to 4 weeks before moving down again. Technically the past week has been an up week given that the market traded higher than last week. And despite the heavy falls in the past three days I still believe the market will be bullish until the end of the month before it falls away for one or two weeks.

I am still confident that that the market will be bullish over the next 12 to 18 months, where there will be plenty of opportunity to take profits from several of the large companies on our market, once investors shake off the negative sentiment. That said I don’t believe it will be all smooth sailing but once the momentum increases so will the market confidence.

Dale Gillham
Chief Analyst
Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.

For more information please visit www.wealthwithin.com.au

Next Tuesday the RBA will meet again and it is almost certain, given the current economic conditions, that the official interest rate will be reduced. It is also likely that we will see further cuts over the next year which is exciting news for those who currently hold high levels of debt.

Reducing interest rates will go a long way to restoring business and consumer confidence, and with the increased confidence we can expect share prices to rise. While this is positive, investors have been hit hard over the past 12 months, and their confidence will take some time to restore. Historically, investors tend to let their emotions override logic, which then affects their ability to make rational decisions in regard to the management of their portfolio. While many investors have rightly exited the market during these volatile times, unfortunately many will wait too long before considering the opportunity to get back in, which is usually after the profits have been taken by the wise and educated.

So what can we expect in the share market?

Last week I indicated that the All Ordinaries Index was displaying signs of indecision, and that it could not continue to stand still as it had done over the previous 4 weeks. This week it appears as though the market has finally decided on a direction and the good news is it is up. But the question on most people’s mind is this just another short term run or is the upward move sustainable?

Today the market has traded to its highest levels in a month; therefore I believe in the short term it will continue to rise for the next 1 to 4 weeks before it moves down again. Right now the longer the move up in both price and time the better.

It is still too early to confirm that the low of 4829 points on 5 August is the long term low I have been expecting, but if it is then get ready for a 12 to 18 month bull market. Although I am now more bullish in my outlook, caution still needs to be exercised as it is possible that the current move up is a suckers rally and that the market could fall to my next price target of 4300 points.

Dale Gillham
Chief Analyst
Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.

For more information please visit www.wealthwithin.com.au