Tackling market manipulation is a big job and ASIC have set up the structure and systems to keep a close watch on would be offenders who participate in insider trading and collusion. Now the average investor, for the most part, would be unaware of the practice called short selling where shares are first sold and then bought back at a lower price, which can result in price falling dramatically. Although short selling is a legitimate practice to protect a portfolio and a way for traders to make money in a falling market, if this activity occurs just prior to an announcement that is likely to lead to a rapid rise in the share price it could be deemed as manipulation.

A possible recent case of this could be BHP’s attempt to takeover the Potash Corporation of Canada, who now allege that BHP were involved in forcing the share price down prior to news surfacing of their intended action. This manipulation can be difficult to prove and may only be just the tip of the iceberg, but the real question is can ASIC do what is needed to ensure a fairer market for all?

So what do we expect in the market?

The All Ordinaries index has fallen away for two out of four days of this week, with Friday also looking very indecisive. I mentioned a few weeks ago that the market was likely to slow down and I see the current weakness as a natural part of the market unfolding as it must periodically pull back before once again moving forward. This time last year the market fell for around two weeks before rising again, and therefore we may be seeing a repeat of this action. That said, it is still possible for the market to rise over the next two weeks above the previous high of 4,773 before it pulls back. My expectation is that the market will generally rise into the festive season, however, remember to set stop losses to protect capital in case the unexpected occurs.

Everyone is talking up whether our dollar will reach parity with the US. In my opinion, the Australian dollar will not only reach parity but move to between $1.10 and $1.20 over the next 6 to 12 months. The main reason is that the US economy continues to remain in bad shape, although that said there are some encouraging signs, but not enough to allay fears that their economy could experience a double dip recession. In response to this, the US treasury are continuing to print money in an attempt to stimulate the economy and avoid the prospect of a further recession. 

The same cannot be said for Australia as commodity prices remain strong, employment figures are good, and whilst the US continues to print money the Australian dollar continues to get stronger. Whilst this is good news for those travelling overseas, it is not good for our exporters who like the dollar to sit between $0.70 and $0.80. We will have to wait and see how the high Australian dollar effects our economic growth, and for mortgages this may result in a positive outcome as an interest rate rise may not be needed.     

So what do we expect in the market?

This week I have spoken with a number of financial service businesses who have advised that many investors are staying out of the market due to the fear of a double dip recession in the US. However, the market is unlikely to fall simply because if everyone is out of the market believing it will fall, then the only way is up. In essence this is what is referred to as a contrarian view which the professionals are taking advantage of by buying on the dips when everyone is looking the other way.   

After showing signs of indecision for the past two weeks and looking more like it would fall, this week the Australian share market has done the opposite and risen strongly. Given this strong move, I would expect further rises to unfold with the market reaching my first target of between 4,800 and 5,000 points earlier than expected. At this stage I believe the market will reach these levels in the next four weeks before falling away into a low early to mid December. Medium term I believe the rise will generally continue through to around March or April next year before our next major move down. 

Once again ASIC stated this week that trading Contracts for Difference (CFDs) was like gambling at the races, and as a consequence they were working at tightening the regulations for providers in the wake of the Sonray collapse. In my opinion, however, CFD trading is no more dangerous than trading options, warrants or futures, yet little is said about the thousands of people that attempt to trade these leveraged instruments without success. Given this, ASIC should be looking to implement tighter regulations for all types of financial product providers not just those who provide CFD platforms.

The real issue is that many CFD providers get away with highly emotive marketing, which in my opinion is full of misleading statements. Providers entice people with free educational seminars, cash and other incentives to open accounts, all with the knowledge that 90 per cent of the money in these accounts becomes revenue for the provider within three to nine months.

Talk to ASIC and they send you to the ACCC, talk to the ACCC and they either send you back to ASIC or do almost nothing. What ASIC need to do is to regulate the industry to ensure the consumer is properly educated by an independent source prior to being able to open an account. The problem will, then, pretty much go away as the industry will naturally change based on consumer demand.       

So what do we expect in the market?

As you know I have tended to be bearish about the market over the past month. The reason for this is that historically the All Ordinaries falls into a low, on average, every 20 weeks. In the past 18 months, however, this has reduced to around 17 weeks, while in the last nine months it has reduced to just over 15 weeks. If we accept the low that occurred on 25 August as the low I have been expecting, then the last three lows have come in at 14 weeks which is unprecedented on the market, hence my bearish outlook.

If the market repeats this cycle, the next low will occur in the last week of November with the high between now and then occurring around the second week of November. It is possible that price will rise to between 4800 and 5000 points, however, as we have seen so many times in the past three years, post GFC anything is possible. Given this, even though I am now more bullish I am still planning for the worst and hoping for the best. Therefore, if you are buying I urge you to stick with the big stocks and set stop losses. If you need to know how to set stop losses grab yourself a copy of my book “How to Beat the Managed Funds by 20%”    

I always get excited to see Richard Branson in Australia, as he continually takes on the big end of town to give the average man on the street a better deal. This week he announced that Australia’s big four banks are in his sights, and I think it’s about time that someone took them on. For the regular readers, you will know I have been saying for years that the banks have been getting it too good for too long and in the wake of the GFC their hold over the mortgage market is even stronger than it was before the crisis hit. If NAB takes over AXA the ‘Big Four’ will also have a lion’s share of Superannuation and Managed Funds.

Branson with his Virgin brand intends to take on the biggest money spinners for the banks being superannuation, mortgages and credit cards. I believe he has an opportunity here as Australians continually complain about the banks, just as much as they seem to hate dealing with Telstra. For too long we have been paying way too much for the service we get, but what other choice is there? Perhaps Virgin can offer a better service at a better price to encourage Australians to embrace this new venture in droves. My only hope is that enough numbers make the move to really get the banks thinking about why they exist.     

So what do we expect in the market?

Market volumes throughout July are still low, and they tend to be lower at this time of year than any other month, except for January when the country is on holidays. Therefore, we could consider this as normal and nothing to worry about. However, the difference between this month and activity in July last year is that lower volume last year was accompanied by a strong price rise. Currently we are seeing inconsistent movements in the market with only a handful of days that are rising strongly. Given this, it would not surprise me to see our market fall away over the next one to four weeks.

For the market to be bullish any downward movement needs to last only a few days before a rise follows, and if this occurs there is good reason to believe that it will rise through 4,650 points in the coming weeks. Sectors to look at for opportunities in the coming months are energy and materials, and sectors to avoid include banking and insurance.   

The view that investing in the share market is complicated, mysterious and best left to the so-called experts who supposedly know what they are doing is a fallacy, perpetuated in part by those in the industry who stand to gain from your anxiety and ignorance. For example, positive returns always make for a good sales pitch and superannuation fund managers are currently coming out with their yearly returns.

Now depending on market conditions, fund managers will direct your attention to whatever makes them look best and so justify their existence. When the market is strong, it is usually the short term performance of the fund that is emphasised; when the market isn’t so strong however, you are often directed to look at the long term performance. Although the performance of the past 12 months by many funds may look positive, we need to remember that fund values are still way below what they were in 2007. Always remember, those in the industry are trying to sell you a product and they will use whatever marketing tactics they can to lure you in.

So what do we expect in the market?

You could be excused for thinking that the share market is like a roller coaster at the moment. Every time the market rises we then see a corresponding fall that wipes out the recent gains. This ‘ground hog day’ type performance has seen our market go nowhere in over two months, even though there have been some large moves both up and down. Eventually the direction of the market will be confirmed and a sustained move will result, and like most people I would like to see it move up. However, as mentioned last week, the market has been trading on significantly lower than normal volume, which is often a sign that the current move is unsustainable. As volumes continue to be low this week, the evidence suggests that uncertainty still reins. Given this, I still maintain that until we can determine direction it is wise to sit back and wait before buying further.