Share Market Wrap 12th Jan 07
2007 has started off with a bang as the proposed merger of AGL and Origin energy attracts attention and Alinta executives propose a management buyout. Given this, it looks likely that we will see the spate of mergers and takeovers continue on from last year’s high number. Whilst the prospect of owning a share in a company with a proposed takeover is exciting because of the positive short term benefits if the merger goes ahead, investors still need to be careful. Throughout history, certain market conditions unfold prior to the completion of a bull market including rising interest rates, low unemployment, high levels of consumer borrowing, rising commodity prices, abnormal high rates of takeover bids and acquisitions, and rampant speculation all of which are occurring now. While I don’t believe that rampant speculation has hit the levels of pre October 1987, we are still seeing a form of this with record numbers of mum and dad investors trading highly speculative instruments such as CFDs Warrants and Options. Sadly there are many alarming stories of investors losing significant amounts of money when trading these instruments with the current life span of new options and CFD traders calculated in weeks not months. Remember bull markets come and go, but it is often costly for the uneducated investor if they fail to recognise the warning signs of when a bull market is ending. Investors need to be conservative right now and leave the high risk markets to the experienced so that they can live to play another day.
So what’s happening on the market this week?
In my last report for 2006 I stated that I expected the market to continue rising, which it has done, rising to a high of 5671.10 on 3 January. From late last week to 8 January the market briefly fell away before continuing to rise. Now that the holiday season is over we are starting to see more volume on the market and as such we should see it rise up to make a new all time high in the short term. This next rise should last around four to six weeks before we see any downside. On the bigger picture our last yearly low was June 2006 with the peak for the year occurring in May 2006. I believe this year will be almost a repeat of this given that am I expecting the market to peak in April or May; however, as we are also due for a 4 year low the market may peak earlier. As always only time will tell, but what I do know is that the run down into the yearly and 4 yearly low this year will be longer in time and further in price than the fall in 2006.
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