Share Market Wrap 14th Dec 07

As this is my last report for 2007, I thought it appropriate to review what has transpired in the share market over the past 12 months. In my opinion, this year has been difficult for those managing a portfolio of direct shares.

Shares that have performed well this year include BHP, RIO, CSL, WOW and LEI, and unless you held these select shares, it is unlikely you would have achieved a good return. These stocks have dominated the market; however, in more normal market conditions you tend to find the stocks that perform well are spread across various indices and sectors.

This year, while the top 20 achieved 32% better growth in comparison to last year, only a few stocks in this index actually contributed to the growth. For example, 11 of the companies in the top 20 are in the financial services sector, yet this sector only rose by 4.77%. The materials sector, on the other hand, only has two stocks in the top 20 including BHP and RIO, yet it achieved phenomenal growth of 48.01%. This was double the performance of the next best performing sector which was Healthcare at 24.64%.

The good news is that we are unlikely to see a repeat of this next year, therefore my recommendation to all investors and traders is to stick with your plan as it will work over the medium to long term.

So what can we expect in the market?

Last week I indicated that I needed to see the market rise this week to change my opinion from bearish to bullish. While the market has technically traded higher this week given that the All Ordinaries Index rose above the high of last week, it only did so for one day while for the remaining days it traded down to close lower. Given this, it is still not possible to confirm the short term direction of the market, although it is showing some bullish signs given that the market has not traded below last weeks low of 6543.2 points.

If the market is bullish it will trade up next week and in doing so confirm that it will potentially rise through until mid-January to between 7250 and 7500 points. If the market falls next week, it will confirm it is bearish and likely to fall until mid-January to around 6200 points. Right now is the time to sit back and be patient because when the market confirms it is bullish there will be some great buying opportunities.

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