Listen to this Australian Share Market Report via audio podcast just click Upfront Investor

Standard and Poor’s will soon release updated credit ratings for the Australian banking sector, and whilst our industry has been paraded as a model to the rest of the world Australian banks cannot afford any surprises given recent world events.

It is important to acknowledge the role played by the Australian Prudential Authority (APRA) in our banking system, as it oversees risk related issues surrounding financial institutions, particularly the Big Four. Without APRA the situation with our banks in the past few years may have been very different. Prior to the GFC, around the world and particularly in America, there was an explosion in the number of banks opening up. In some countries the push for a free market economy opened the gate to a massive increase in their exposure to risk.

The sad reality is that it’s the public in those economies who deposit their money with these banks in good faith that are often unaware of the way banking works and the risks that exist. Strangely, history shows that the American banking system repeats a boom bust cycle approximately every 20 years. At some point the bubbles burst, and when they do banks don’t have the money to pay back depositors. Perhaps world regulators ought to take a leaf out of APRA’s book. In the mean time I look forward to Standard and Poor’s current view of the Australian banks.

What do we expect in the market?

Last month the Australian share market traded to a high of 4472 points, the highest level achieved since the market went into free-fall in August 2011. Following this move, global fears spiked about an Italian default and sparked a sell down across global markets on Wednesday night. This impacted the Australian market on Thursday seeing the All Ordinaries index down in excess of three per cent before the situation began to stabilise in afternoon trade. From here my analysis suggests the Australian share market will continue to rise despite the complex turn of events we continue to observe in Europe. 

Investors are wise not to follow the daily moves on the market, rather it is more important to wait and see how the market closes at the end of each week. As I have always said, it is the inexperienced that open the market and those ‘in the know’ close it. For traders wanting to take advantage of the next rise, look for short term opportunities emerging in good quality top 100 Australian stocks instead of being influenced by the fear in the media at the moment.

Visit our Facebook page for links to more detailed discussions on world markets.

Dale Gillham

Chief Analyst, Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.For more information please visit www.wealthwithin.com.au

Listen to this Australian Share Market Report via audio podcast just click Upfront Investor

When it comes to the right strategy to use for buying into company floats, investors continue to remain none the wiser when considering opportunities. Glossy offer documents, high profile marketing campaigns, enthusiastic brokers, and the ability to buy without brokerage can be strong motivators for investors to pull out their cheque books. But are they good reasons to buy into floats?

Would it surprise you to know that in around 50 per cent of floats, the share price will fall way below the offer price in the first 12 months? To illustrate this, let’s take the Myer float in 2009 where helped by the brand it received an extraordinarily high level of publicity and subsequent uptake by retail investors.

Most investors failed to consider how the Myer family did not intend to hold stock in the company post float, and how depressed consumer spending post GFC in the retail sector was likely to impact the share price.

Myer shareholders had to pay $4.10 for the stock, it debuted on the market at $3.88 and since has experienced a harrowing ride to as low as $1.99 by September 11.

In my opinion investors need to place more importance on the real statistics and the risk associated with buying a float over marketing hype, broker spin and the opportunity to save brokerage.

What do we expect in the market?

Last week investors welcomed a strong rise across the Australian share market as it moved to 4411 points by Friday’s close as optimism was building in financial circles that the debt situation in Greece would soon be brought under control.

However, world markets went into a tail spin when the Greek president announced his intention to hold a referendum on the EU rescue package, a decision quickly reversed following pressure from the international community. It is no wonder world markets are volatile at present with all of the current uncertainty that exists.

The good news for us, even with all the confusion in the world, is that last week the Australian share market broke above the September 2011 high of 4425 points. More importantly, the market continues to find support above 4100 points and my analysis indicates we are likely to see further rises.

That said, given the uncertainty in the world, investors need to continue to remain cautious about the market whilst looking for opportunities to make some gains. I suggest investors stay out of banking for now and look toward the Energy and Consumer Staples sectors.

Visit our Facebook page for links to more detailed discussions on world markets. 

Dale Gillham

Chief Analyst, Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.For more information please visit www.wealthwithin.com.au

Listen to this Australian Share Market Report via audio podcast just click Upfront Investor

Finally Europe has come to some sort of an agreement on their debt problem, but will this decision signal an end to persistent share market volatility around the world? If you are like most you are probably sick of share market fluctuations and would like to think that last night’s decision means the bear market is over and that the next big bull-run is now under way.

However, the challenge is that the current story does not have a fairy tale ending as we are in the middle of a complex political and economic environment. In my opinion, the journey to solving Europe’s woes is only at half time and no game is won if the contenders stay in the dressing room, rather the battle is won by playing hard ball in the second half.

So rather than getting too excited, we need to remember Australia is more aligned to Asia than the US and Europe, and as such we need to look there to determine our future growth. Asia is taking our commodities and they have been dropping in price, with iron ore for example down around 30 per cent in the past two months.

These commodities are traded in USD and therefore a fall in both the USD and commodity prices as is happening now will have a double negative effect on the profit of our resources companies. So whilst I suggest the news out of Europe is good to see, let’s not get ahead of ourselves.        

What do we expect in the market?

This week the market has been buoyed by expectations of good news from Europe, seeing it trade to its highest levels since early August. This is great news for our market as indecision should now subside at least in the short term, with trading volumes to rise along and a lift in investor confidence. Whilst not confirmed I would now suggest that the All Ordinaries Index will trade up for the foreseeable future with many opportunities to profit.

The challenge right now is to determine if the rise is sustainable medium to long term, and here I am still leaning to the negative side until proven otherwise. The market would need to break 5000 points strongly before I change my mind on this and right now I believe this is unlikely to occur within the next three to six months.

So is now the time to buy?

In my opinion it is but with a short term view and only buy the top 100 stocks. Lastly, always protect capital with a stop loss and remember just as announcements can move a market up quickly they can do the opposite at even greater speed - markets don’t crash up.

Visit our Facebook page for links to more detailed discussions on world share markets. 

Dale Gillham

Chief Analyst, Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.For more information please visit www.wealthwithin.com.au

 ASIC are now well and truly in the driver’s seat as regulator of the Australian share market. Given this, one would expect that all remaining road blocks ensuring a fair and transparent market place have been removed. However, I believe there are some areas that still deserve closer scrutiny. One area of particular importance for ordinary investors is for a greater degree of disclosure from market participants around short selling, especially in a bear market.

Few would argue that for a market to be truly transparent all transactions must be reported and this would even include those created and then closed out on the same day. Reporting this way ensures the public are fully informed about the dealings on or off market that could affect their investments.

Currently, as is disclosed on the ASIC website there is no responsibility on the part of ASIC to ensure that all transactions are reported by market participants, or institutions, carrying out short selling activity. Given this, how can the public be confident that the data collected is true and correct?

Further to this, why collect data at all if it is not a true account of market activity? For a change to occur, ASIC needs support from the Australian government, but then the question would remain whether institutions would support the change given they are the biggest participants in lending stock for short selling.

What do we expect in the market?

The Australian share market made a strong start to the week on Monday with a gain of around 80 points, however, conditions quickly deteriorated as news emerged that Europe seems no closer to reaching a decision on the debt crisis.

This saw the All Ordinaries index wipe out Monday’s gains before sliding lower for the rest of the week to break support at the 4200 point level. As this occurred a lot of short term traders were stopped out of their positions as they attempted to speculate that the resolution would further lift the market.

From here it is probable for the Australian share market to find support at around 4100 points, a critical level that if held could provide a launching pad for the next rise to around 4500 points. If the market does find support here before breaking back above 4300 points the probability of a further rise increases, and this would give us a target between 4450 to 4500 points.

Alternatively, if the market were to decline back below the 4000 point level the balance will shift back in favour of the bears and therefore further falls would be expected.

Dale Gillham

Chief Analyst, Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.For more information please visit www.wealthwithin.com.au

 As a result of the GFC, world markets have been moving through a period of closer government scrutiny and increased regulation. At times I question whether some of the controls have gone far enough in helping to make our share market more transparent, or whether the government is being dictated to by the big end of town to do things that suit them. On the flip side I believe some of the new regulation and red tape has gone too far, which in turn increases costs, stifles business growth and leads to less competition. All of which is not good for the consumer as it does not achieve the desired result in making investments more transparent or safer, nor is it good for business as it places extra burdens on them. 

Whilst not related to the share market, but one that will have a great effect, is the announcement this week that the government passed the carbon tax bill in the lower house. In my view, this will not only increase costs but it will lead to stifled business growth and less competition, at a time when we need to opposite to occur. Don’t be surprised if in the near future we see increased unemployment as large scale layoffs occur because our businesses struggle to compete internationally. This will be especially so if the Australian dollar increases, which is likely as Europe and the US continue to print more money in the next 12 months resulting in devaluing their currency.

What do we expect in the market?

We mentioned last week that there were two possible scenarios that could unfold in the market, one were the market would find support and the other where it would continue to be bearish. Although the market continued to trade higher this week, it has not given a definitive answer to which scenario will unfold.

Over the past four days volumes have been lower yet the market has been rising with it finding resistance around 4300 points. For the market to confirm a more bullish outlook, I need to see a sustained rise over the next few weeks with the All Ordinaries breaking above 4400 points.  If the market starts to fall again I believe it will do so quickly and break below recently lows. For now I suggest investors and traders take a wait and see approach before getting into the market.

Dale Gillham

Chief Analyst, Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.For more information please visit www.wealthwithin.com.au