It would appear that despite the severity of the pull back leading up to the low in March 2009, many investors have failed to learn from the mistakes of the past. During the bear market leading up to March of this year many investors were overwhelmed with fear as they watched their investments fall up to 40 per cent with some as much as 70 per cent. However, with the market conditions being so bullish over the past 6 months, investors have now replaced their fear with greed and turned to speculative or penny dreadful shares in an effort to make quick profits. 

Over the past few months, however, the market has risen at a speed far greater than what was evident in the run up to both the 1987 crash and the sub-prime meltdown. Given this, the market has the potential to fall heavily, which could result in many investors reverting back to fear and experiencing the losses they are trying to avoid.

So what can we expect in the market?This week the market has unfolded in a similar fashion to what occurred in late September, where we had a mixture of up and down days as the buyers and sellers tried to decide on a direction. This could be a signal that at least a short term high has been achieved and that the market is about to move down into the low I have been expecting in November.

That said we know that the market has been bullish and we need to expect that it will continue to do so until it indicates otherwise. Therefore I am still expecting the market to rise to between 5000 and 5200 points between now and mid-November before it falls into a low in mid to late November or early December. 

If you are confused about where the economy is heading and whether you should fix the interest rate on your housing loan, or what you should do with your investments, you are not alone. The past year has been one of contradictions given that we were told interest rates were likely to fall further and now they are rising, to use the government handout to buy imported goods because the Australian dollar would continue to fall and prices would rise, that property prices would fall which has certainly not been the case and that unemployment would rise above 7 per cent. Given this, it’s no wonder many Australians are confused about what they should be doing.

The Productivity Commission’s draft report on executive pay and the potential influence that minority shareholders will have raises some interesting questions. The main one is whether so few shareholders should be able to effectively sack the board of a company. I am all for more accountability from companies and their boards as I believe many executives are paid too much especially when you consider that quite a few have received significant pay rises in the past few years whilst shareholder value has decreased. 

It is well known that voting on issues at Annual General Meetings (AGM) are generally considered a forgone conclusion, given that deals are often struck before an AGM with the majority shareholders who are usually the institutions. This makes AGM’s merely a token gesture to at least look like the board is interested in what ordinary shareholders want. It’s no wonder that average Australian shareholders are calling for more transparency and accountability. The challenge for the commission now is how to balance the needs of the minority along with the need for boards to act effectively.

So what can we expect in the market?

The market has continued to defy logic over the past week by refusing to fall away in price, instead it has really only traded sideways as the bulls have been unable to push the market higher. Since 17 September the All Ordinaries Index has closed lower on 7 occasions and has also made a lower low and a higher high, all of which are signs of indecision and in this case bearish indecision.

With the Dow falling 2 per cent overnight, the Australian market will travel down today, and should break below the low of 4646.30 that occurred on 25 September. If this happens it will signal that the market is finally moving into the short term low that I have been expecting. If I am correct we could see a short sharp move down of one or possibly two weeks, with the market likely to fall by at least 5 to 10 per cent with a price target for the fall of between 4300 and 4500 points. I expect it will more likely be the latter and then following this the market will move up again for a few weeks in late October before experiencing a larger fall in late November or even December.  

It never ceases to amaze me that every time the market is bullish an array of new scams appear. Only recently I was talking with a gentleman who received a call from an overseas company about an incredible investment opportunity that promised safe returns of several hundred percent over the next 6 months. Based on this alone, the red flags should fly. While the company sounded credible and the caller knowledgeable, it was obvious that this was a marketing gimmick designed to entice unsuspecting investors to invest offshore. While these types of investments sound attractive, it really comes down to buyer beware. 

Apart from the currency risk of investing overseas, you need to understand that the investment is not regulated by ASIC, which means there is very little recourse if the investment turns sour. In my opinion, the best thing you can do is hang up, but if you do decide to investigate it further, ensure you do your homework before making any commitment and make sure you visit ASICís consumer website www.fido.gov.au/fido

So what can we expect in the market? 

Over the past week the market has continued to defy logic by trading sideways rather falling as I expected. That said during 5 of the last 7 days our market has traded down, and Wednesdayís strong bullish run failed to break above the previous high of 17 September, although the bulls were trying.

The market was down yesterday and it looks as though it will be down again today, which suggests that it is rejecting any bullish attempts. Given this, it is quite possible that we will see the market move down further over the coming week as it finally moves into the short term low I have been expecting. If I am correct we could see a short sharp move down near the end of next week and possibly very early the week after, with the market likely to fall by at least 5 per cent and as much as 10 per cent.  

Following this, the market is likely to rise up to around 5000 points by mid to late October before falling into another low in November. Remember, shares can move contrary to the overall market, given this there is still time to profit if the right opportunity presents itself. But a word of caution, be selective, make sure the company is strong and above all protect capital by setting stop losses.