Share Market Wrap 18th July 2008
When analysing the market, it is important to always review the historical patterns to assist in forming a view of what may occur in the future. It is a well known fact that the All Ordinaries has a history of making a major low approximately every 4 years, and with the last 4 year low occurring in March 2003, it is obvious that we are well over due for the current 4 year low.
The longest period in history for the 4 year low to unfold on our market is 64 months between July 1982 and Nov 1987 and currently the market has been unfolding for 61 months since March 2003. Given that the average length of the 4 year low is around 50 months, it is evident that the low could occur at any time. While the opportunities will be plentiful when the low is confirmed, investors will need to exercise caution by only investing in large companies that generally lead market recoveries.
So what can we expect in the market?
This week the market continued to sustain its downward trend falling to a low of 4880 on Wednesday 16 July, which is now the 8th successive week that the market has fallen. While it is rare for the market to fall for such a sustained period I still believe it will rebound over the next one or two weeks.
Given the level at which the market fell to this week, it is also possible that we may see an end to the current fall and the market return to being bullish, however, only time will tell. Given that anything is possible in the current market conditions, it is important that investors protect their capital in preparation for the next bull run, which I do not believe is too far away. I expect the market to find support around 4800 points although if it falls through this level it could fall to the next support level of around 4300 points.
Dale Gillham
Chief Analyst
Wealth Within
A few weeks ago I indicated that the rising price of oil was based more on speculation rather than supply and demand. I also pointed to the price of oil peaking this year, with prices likely to fall over the next one to two years to around $70 a barrel. In the last two weeks the US government has introduced plans to reduce the speculation on oil prices, which has subsequently seen the price of oil fall. While it is still too early to confirm whether oil has peaked, the signs are very encouraging. If it does start to move down I don’t believe it will be a swift retreat, rather I expect it will be steady decline over the next 12 months.
So what can we expect in the market?
Last week the All Ordinaries index fell to a low of 4880 on Wednesday 16 July, and has since risen strongly to reach a high of 5209.60 as of Wednesday 23rd July. Whilst the fall was close to my target of 4800, I am not convinced that the fall is over. My current expectation is that the current move up will last between one to four weeks before it finds any resistance, although in my opinion the longer the upward move the better.
For the market to prove it is bullish again, we need to see it hold above 4880 points. While it will fall away to test the recent low, the move down needs to be short lived. Currently the medium term direction of the market is uncertain, as it is still possible it could fall away to trade around 4300 points, which is the next support level on the All Ordinaries Index.
Remember, until the market proves it is bullish, we need to assume that it will continue to be bearish. Given that the market has yet to prove it is bullish, is it is far safer to sit and watch it unfold before making any decisions. Once the market confirms it is bullish there will be many opportunities to profit in top blue chip shares during the remainder of the year. Right now I encourage investors to sit tight.
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 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
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