The US has just started its reporting season, and executive pays are well and truly in the hot seat especially those in US banks who look set to be paid record bonuses. While I am all for paying bonuses to employees who go above and beyond what they would normally be paid to do, I do not believe the US bank executives should be paid any bonuses given that they were responsible for the biggest meltdown in world markets in nearly 100 years. Furthermore, the US banks really only survived bankruptcy because of the US government handout, so I think the real bonus for these executives is that they are not in jail. 

There are arguments for and against large bonuses and salaries for executives, and with the majority of shares traded in the market done by institutions, the average man on the street has very little or no say in what goes on in this area. I believe as the divide grows between those that have and those that have not, we will see more public unrest and much more political debate surrounding these issues. In the next few years, Governments will need to take appropriate action before things get too hot.     

So what can we expect in the market?

In my last report, some four weeks ago, I suggested that the Australian market would soon break out of its sideways move, hopefully on the upside to move up to our target level of between 5000 and 5200 points into January or February. I also mentioned that once the high was achieved the All Ordinaries would move down into its yearly low around March 2010.

This week the market hit 4984 points which is its highest level since 26 September 2008, and I still believe that the yearly cycle high will occur around the target levels I mention above. Given this, I expect our market will continue to rise over the next 2 to 4 weeks before falling away into a low in mid to late March.

The fall into the coming yearly low will be the first real test of the March 2009 low, and will tell us a lot about how the market will unfold this year. My expectation is that once the yearly low occurs we will see a very strong rise in the All Ordinaries Index into the middle of this year, but only time will tell.  

In the 2008 ASX share ownership study, it states that 58 per cent of people invest in shares to either make money or accumulate wealth. What is interesting about this is the fact that a large percentage of these investors seek their advice and information from newspapers and the internet, rather than from advisors or financial planners. Is this because individuals believe they are more equipped to make investment decisions than the experts, or is it because of a lack or confidence in the advice they may receive?

According to the survey more people rely on family, friends and colleagues for their source of advice rather than brokers, and use financial planners only slightly more than their family and friends. I am all for doing it yourself when it comes to investing, but in my experience many investors lack the knowledge and experience to fully understand how to manage a direct share portfolio. Quite often investors look in all the wrong places for advice and information - the end result being that they make emotional decisions rather than educated ones designed to achieve their outcome of wanting to make more money or accumulate wealth. As Albert Einstein once said “Education is the progressive realisation of our ignorance”

So what can we expect in the market?

Although unconfirmed, the strong rise in the market over the past week looks to have signalled the end of the down move that we have experienced since 15 October. To confirm this, the All Ordinaries Index needs to fall away for one to four days and hold above the recent low of 4515 points on 5 November. I believe the market will test the low over the next few trading days, and then turn to move up once again.

As I have previously reported, I believe the market will rise to around 5200 points into January 2010 and possibly higher into February before moving down into its yearly low at the end of the first quarter of 2010. That said over the past few months the markets cycles have been shorter than normal, so we need to expect that this could continue and that the next low could occur in January rather than March. For now, enjoy the rise and what looks like to be a good Christmas as opposed to last years doom and gloom.       

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.