Share Market Wrap 30th March 2007

They say that too much of a good thing is bad for you, and when trading the share market, this certainly rings true. We all know that investing for the long term will generally yield profitable results often in the realm of 10 per cent per annum. However, there are many people who believe that day trading will yield even higher profits but in my experience this is a costly fallacy that often results in major losses. Just recently I heard of a day trader who had lost $150,000 in the past year despite being in one the most bullish markets in history. Unfortunately this story is quite common, which is supported by a recent meeting I had with the head of Macquarie Banks CFD department. He indicated that their research showed that clients who traded more made far less or lost in comparison to those who traded over longer time frames. Given this, in my opinion unless you are very experienced in trading short term it pays to take a medium to long term view when investing in the share market

So what’s happening on the market?

To say the market is at an interesting point right now would be an under statement. Since the market fell 7% into the low on 6 March it has risen for two weeks and while it rose strongly earlier this week, it has since fallen away. We know that the fall into the low on 6 March lasted 7 days and fell 7% in price, and as of today the market has taken 19 days to rise back up to be near the price it was prior to the low. The fact that the All Ordinaries is taking longer in time to rise suggests that the market psychology is not as bullish.

Given this, I believe there is a high probability that the market will peak over the next two weeks if it has not already done so, with the peak likely to occur between 31 March and 4 April. If this does happen, I believe the fall is likely to be at least 9% in price which would see the All Ordinaries drop to around 5500 points and below. That said it is still possible that the market will rise through its all time high, which would see it continue up until around mid-April. But as they say only time will tell, therefore for now stick to your trading rules.

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