Share Market Wrap 13th April 07

This week the government announced that it had achieved the lowest unemployment in 32 years and attributed this to the introduction of the work choices legislation. Now I am pretty open minded but I would have to say that most people would recognise that the low unemployment has resulted from a booming economy and has nothing to do with the work choices legislation. That said I also question whether we are looking through rose coloured glasses when it comes to the future economic growth of our country. Remember what goes up must come down and prior to the 1987 crash many believed that the economy and the share market would continue to rise strongly. So the question that remains is are we being overly optimistic and if so what are we doing to protect ourselves against the inevitable market correction?

So what’s happening on the market?

I indicated in my previous report that the market would most likely peak between 31 March and 4 April, although if this did not occur it would continue to rise into mid April. Based on my analysis there was an 80% chance that the peak would occur, and despite the new all time high that occurred on 4 April, I still believed the market would peak as expected; however, this week it has continued to trade higher.

While the market has traded higher, I still believe it will peak soon; in fact based on historical research there is a 77% chance of a short term market peak within 8 trading days of 4 April which means the market may still peak up to and including 18 April. Given that the market has reached a strong resistance level at 6160 points this week, we may see it turn to confirm the short term peak I am expecting. If the peak does occur, I believe the market will fall around 9% in price over two to four weeks, which will not cause too many problems for those with a medium to long term outlook.

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