Share Market Wrap 17th Aug 07
During times when the market experiences significant volatility, it is always better to take a global view to understand the facts rather than get caught up in the emotional microscopic view. As of market close yesterday, the All Ordinaries Index had fallen 978.40 points or 15.12% in price over 24 trading days. In 2006 the All Ordinaries Index fell 626.10 points or 11.69% over 24 trading days into the low of 14 June 06. Given this, the fall to date can be placed in the context a normal market pull back.
If we compare the current market pull back to the 1987 crash, where the market fell 798.5 points or 34.53% in 24 days, then it is unimaginable to even suggest we are experiencing a market crash right now. The reality is that market crashes like 1987 are extremely rare with only two occurring in the last century - 1929 and 1987. Most crashes actually occur over many years like the one we suffered between 1970 and 1974, when the market fell 62.17%.
So what’s happening on the market?
Last week I indicated I was expecting the market to rise this week, although there was the probability it would continue to fall to below 5800 points and possibly as low as 5600 points. After rising on Monday the market turned to fall heavily over the following 3 days to move below my target of 5600 points to a low of 5490 points yesterday.
Although the fall was larger than anticipated, it has fulfilled both the time and price targets I was expecting. Given this, there is a higher probability that the market will rise, at least in the short term. That said, our market is due for a 4 year low similar to the fall we experienced into March 2003 and as such any rebound now may be short lived. Once again, for the market to prove it is bullish, it needs to rise for at least 4 to 6 weeks - if it fails to rise for more than 2 weeks, it is possible the market will continue to fall away.
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