Share Market Wrap 28th Sept 07

Based on the weighting of the top 20 shares in the Australian market, it would be fair to say that these stocks drive the All Ordinaries index. Given the bullish run the market has had since the low of 16 August, I think it is worth examining which of the top 20 shares has been driving the rise.

As at the close of the market on 16 August up to yesterday (24 September 2007), the All Ordinaries Index has risen 14.63%. Of the top 20 shares, BHP has risen the most at 31.88%, closely followed by MBL and RIO at 30.94% and 30.13% respectively. Aside from MBL, which rose strongly given that it was oversold in the fall into 16 August, the other six banks in the top 20 only rose on average 8.84% with NAB only rising 4.85%. Only nine of the top 20 shares outperformed the All Ordinaries Index, while Telstra was the worst performing stock with growth of only 1.87%.

Given these figures it is fair to say that a large portion of the rise in the Australian market can be attributed to BHP, MBL and RIO. Outside of the top 20, the big movers were the resource stocks, therefore this is where the opportunities lie at present. While this is positive, what is concerning is that the banking sector is looking quite weak, which suggests that we may not have seen the end of the credit squeeze.

So what can we expect in the market?

In previous reports I have suggested that for the market to prove it is bullish it needed to rise for more than 6 weeks and today brings to an end the six weeks since the low of 16 August. Given this, if the current rise continues then probabilities suggest that the overall market is likely to be bullish for several months.

That said the market has behaved abnormally in recent times, therefore I have changed my opinion from being bearish to cautiously bullish. While the market will rise over the next month I believe it will fall for one to two weeks during that time. What happens during the fall will determine how the market unfolds over the next 6 months.

Social bookmarking: These icons link to social bookmarking sites where readers can share and discover new web pages.