Share Market Wrap 25th Jan 07

Telstra announced on 24 January that it had gone to the high court to enforce shareholders constitutional rights after the ACCC arbitrarily reduced wholesale broadband prices to record lows. Telstra are arguing that the price reduction will result in the company selling their service at a loss and as we all know, no business can survive selling their goods and services below cost. Not surprisingly, this announcement provides yet another reason to explain why Telstra’s fundamentals are the worst in the telecommunications sector and why the current rise in the share price is not sustainable. The question we have to ask, is this move by the ACCC an attempt to get Telstra to clean up its act - after all isn’t the retail cost of broadband to Australian’s the highest in the western world?

So what’s happening on the market this week?

On 22 January the All Ordinaries Index traded up strongly breaking above its previous all time high, which confirms that the current bull market is going to continue. This is further cemented by the fact that the market has continued to rise to make new all time highs every day this week. Over the next week we will see one or two down days, although this is nothing to be concerned about as it is just the normal ebb and flow of the market. Following this we should see the All Ordinaries continue to rise strongly to make new all time highs through to around 13 February. Given that I expecting the market to rise in the first half of February, it is highly likely that we will see it fall in the second half of the month in the order of 3% to 5% although it could fall further.

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