When filling up my car the other day I was surprised to see that I was paying almost $1.45 a litre, particularly when the price of oil is around 16% cheaper than it was mid last year. By the end of May 2005 oil was around $55 a barrel or 30% cheaper than it is today, yet we seem to be paying almost double for petrol today compared to what we were paying in 2005. In January 2007, oil made its 4 year cycle low and has since risen 32% in price. It is anticipated that the price of oil will continue to rise for at least 12 to 18 months from the low to trade above $80 a barrel. Over the longer term, I believe oil will trade to around $95 a barrel before we see any significant pull back. Given the considerable disparity between the price of oil and the amount we pay at the petrol bowsers, it concerns me how much it will cost us to fill up our car in two years time and who is profiting at the expense of consumers.

 So what is happening on the market?

While it is still too early to confirm that the market is falling into its yearly cycle low, it has traded sideways over the last three weeks, which is a sign of indecision, thus increasing the probability that the market may fall away. In my last report I stated that the market peaked on 10 May 2006 before falling heavily into June 2006. This year the All Ordinaries peaked on 9 May at 6376.90pts, however, on Monday, Tuesday and Wednesday of this week the market traded slightly above this level before falling away each day to close below it. This adds strength to the fact that there is short term indecision in the market, and that eventually either the bulls or bears will take control to determine the future direction.

As you know I have been expecting the market to move down into its yearly low, therefore I believe the bears will take hold and we will see the All ordinaries fall for 2 to 4 weeks if not longer below 6100 points to as low as 5900 points. While this report has focused on the short term direction of the market, investors should not be too concerned as I believe once the market pulls back it should rise once again. 

In recent years, reverse mortgages have gained considerable momentum as a way for retirees to unlock the equity in their home to fund retirement. But is this the best option or is it simply a way for the banks to profit yet again? Given that the value of the property is locked in at the time the retiree applies for the mortgage, the only one profiting from the capital growth in the future is the bank. Some might say that the benefit to the retiree is that they not only receive an annuity from the equity in the property but they can also remain living in their home. However, once the annuity runs out not only has the retiree lost their home but the income to continue to fund their retirement. In my opinion I believe we should be encouraging retirees to use the equity in their home to invest in assets that create income and capital growth rather than erode the value of their assets. Not only will retirees retain the benefit of the capital growth in their home, but also gain from being able to adequately fund their retirement. 

 So what is happening on the market?

I have previously mentioned that price travels at a certain speed in percentage terms over a period of time, and that the current market has been travelling at twice the speed for more than twice as long as it did following the March 2003 low. However, we are now seeing signs of the market slowing which could indicate that the fall I have been expecting may occur soon. Between 6 March and 18 April the market rose 10.25% over 43 days while over the last 29 days it has only risen 2.24% as a result of the market really only trading sideways for two of the last four weeks.

Interestingly, in 2006 the market peaked on 10 May 2006 before falling heavily into June 2006 and the current high on our market occurred just over a week ago on 9 May at 6376.90 points. For the market to prove it is still bullish, price needs to move through the current high of 6376.90. If it fails to do this over the next week it is highly likely that the market will move down to create the low I have been expecting.    

Since the Australian Taxation Office announced that Self Managed Super Funds (SMSF) could invest in Contracts for Difference (CFDs) there has been significant debate as to whether this is a sensible move. Given that investing in CFDs is considered high risk because of the leveraging involved, the opponents to this move believe that this product is not really suitable for a SMSF. Those who support this move, however, claim that investing in CFDs is just as safe as buying shares, so why shouldn’t it be allowed. Interestingly, the people opposing the move are the dealer groups and financial planners who won’t benefit from a SMSF investing in CFDs.

While CFDs are a highly leveraged instrument, the problem for the ATO has been that they support options and warrants in SMSF’s, therefore it would be difficult to argue excluding CFDs.  While I agree it is a concern, particularly if the investor does not have the knowledge or skill to trade CFDs, I believe trading CFDs is lower risk than trading options and warrants. My recommendation to anyone considering CFDs as part of their investment strategy should ensure they are educated in the reality of the risks and the knowledge to minimise their losses.

 So what is happening on the market?

If you remember, I was expecting the market to fall around 9% over 2 to 4 weeks from the all time high set on 18 April, however, as we now know it only fell 1.77% to 1 May. Based on this some of you may be thinking that is good because it signifies that the market is still bullish. While in essence this is correct, we really want to see this sort of bullishness at the start of a bull run not at the end. Let me explain.

Price travels at a certain speed in percentage terms over a period of time and since March this year price the market has travelled at twice the speed for more than twice as long as it did following the March 2003 low. This indicates one of two things: either the market is more bullish now than it was when it rose out of the last 4 year low in March 2003, or the market is in a state of euphoria like we experienced just prior to the tech wreck in 2000. In my opinion I believe it is the latter, hence my concern. Whilst I am certainly not suggesting the market will fall as heavily as it did during the tech wreck, I do believe we need to be very conscious of where the market is right now and what may occur in the future.  

So what can we expect from here? It is now likely that the market will continue to rise over the next few weeks to around 6500 points before we see a much larger fall than my original expectation possibly into June or maybe July. That said we still need to be aware that the market could still fall away at any time over the next few weeks to achieve my original price target.

It’s May and that means the budget is due this month, so what does it mean for investors in the share market? Given that the federal election is also due this year it is likely that the budget will be designed to increase votes rather than focus on the real issues that need to be addressed in this country. Given that business confidence supports the growth of the share market, if the budget takes a caretaker approach, businesses may not have the confidence they need to continue growing and expanding. Therefore they may consolidate or defer expansion until they have more certainty on who is going to be in government and what the economy will be like.

This has the potential to slow down the growth of the share market and possibly even see it fall away. No doubt the focus of the budget will be about keeping inflation in check, which means keeping economic growth at acceptable levels. What worries me is that this year’s budget may go overboard in trying to keep inflation down simply to win votes which may have a greater impact on share market than we might otherwise expect.  
 
So what is happening on the market?

The market continued to fall away earlier this week as expected, however, on Wednesday it turned to trade up strongly resulting in the All Ordinaries Index breaking above the previous all time high on Thursday. In previous reports I stated that I expected the market to travel down for 2 to 4 weeks from the all time high set on 18 April, and up until Wednesday, it had moved down for 8 days which is slightly short of my target. While this is a concern, what bothers me even more is the fact that the fall was not that significant and therefore failed to reach the price target I was expecting.

So what can we expect from here? It is likely that the market will continue to rise over the next few weeks before we see a much larger fall possibly into June or maybe July. While the market could still fall away over the next few weeks to achieve my original price target, I believe this is less likely given that the market has made a new all time high.

This week the government finally approved the new cross media ownership laws. The Packer’s and Murdock’s have been pushing for this to occur for years, so it is no wonder they made the first strike in the moving Australia’s media assets around.  But are the new laws really good for the country?  This depends on your point of view. As an investor, I think its great news as it will allow these companies to expand, which therefore means there is strong potential for growth in the share price. That said it is also important to consider the social impact that these changes will have, given that the media in Australia will now be controlled by fewer companies, which could lead to media bias. 

 So what is happening on the market this week?

 Last week I indicated that the All Ordinaries Index would most likely peak between 5260 and 5275 points around the 15^th to 20^th of October.  On Tuesday, the 17^th of October, the market rose slightly above my target price achieving 5298.90, before falling away to create a peak.  While I cannot confirm, at this point, that this is the peak I have been expecting, I believe the probability of this being correct is quite high. Therefore we could reasonably expect the Australian market to fall away for at least the next two to four weeks into a low with price falling to between 5155 pts and 5012 pts around the 15^th to 22^nd of November.