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 putting off expansion plans and this has a flow on effect for business borrowings, employment, and spending on infrastructure and other services. Added to this, we have seen government projects such as the NBN put on hold, and as each day goes by where nothing happens the negative flow on effect into our economy increases.

Despite the recent economic conditions, we have had 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, I would suggest that we could be see a different picture 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 do we expect in the market?

The All Ordinaries Index has fallen away this week as expected, with the market down by around two percent from the open on Monday. Apart from Thursday’s rise, the market has looked bearish this week, highlighted by strong falls on Tuesday and Wednesday. As mentioned last week, I believe the forthcoming decline will be 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.

Looking at the Dow, I believe it is also falling 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.

Wanting to learn how to trade? Then share market forums are not the place to go. Before you visit websites with the idea of finding out what shares to buy and sell or getting share market trading tips, I urge you to think again. There is no such thing as a free lunch, and attempting to learn to trade from free website will cost you.

I have never met a full time successful trader t hat frequents forums, therefore learning to trade the Australian share market from chat forums is fraught with danger, let me explain…..

After having recently recording a podcast series on share market forums, today I read an article in a blog from SmartCompany.com.au about one company taking action against a share market forum Hot Copper. This article highlighs why I have concerns over the information available in these websites.

If you want to listen to my current podcast click the link below: Share Market Chat Forums Part 4

If you want t listen to parts 1,2 and 3 click the following link: Talking Wealth

All too often we get caught up in short term thinking rather than focussing on the bigger picture, and this is especially so when it comes to investing. To illustrate, let’s consider what can be achieved with good shares and a little time. Put simply, had you invested one dollar in BHP shares at the start of January 1999 by 31 Jul 2010 your investment would have increased 592 per cent. During the same period other top 20 shares like CSL grew 599 per cent, Woodside Petroleum 473 per cent and Woolworths experienced a gain of 386 per cent. These figures are only for capital growth, and therefore dividends received or re-invested would have increased these returns. Of course not all shares are suited to a buy and hold over the longer term. The same dollar invested in Telstra experienced a loss of 57 percent, and 60 percent with AMP, not including dividends.

The key to investing or trading the share market is not to look for the next big thing or to find a new way of trading or even trying to pick the short term moves. With over four hundred years of world share market history to guide us, one thing we know with certainty is that nothing has changed in terms of the mechanics of markets. People continue to react to information and therefore the market will always do what it does. Regardless of how smart we think we are or how much new technology we have the other thing we can learn from the 400 years of market history is that we do not learn from mistakes.     

So what do we expect in the market?

You could be forgiven if you are thinking that the movements in our market are very much like driving your car with the handbrake on. You know something is wrong but you just can’t figure out what. Our market is trading at just below 4,600 points, which is the same level it was three months ago despite having two strong moves of 10 per cent plus and two nine per cent plus moves. The problem is that only half of those moves were up. Whilst this is exciting for short term traders, the same cannot be said for medium to longer term investors.

The longer this volatility goes on the more likely it is for the Australian share market to move down over the next few weeks. If the market fails to continue the current rise we could see it fall to below 4,200 points and possibly to 4,000 points. I would expect that a move down would be short and sharp with the eventual low occurring between 20 August and mid September 2010. Given this, it might be wise to take a cautious approach to investing until we can confirm which way the market is moving.