Share Market Wrap 30th Nov 07

The ASX launched its CFD platform on 5 November with 16 listed ASX equities and in less than a month it now has 50 listed equities, foreign exchange, indices and gold CFDs. While the ASX brand adds creditability to this product, I am concerned that it may give the retail market a false sense of security believing CFDs are low risk simply because more and more individuals are being attracted to trade this highly leveraged market when in my opinion they lack the knowledge and skill to do so.

Over the past month, the overall market has fallen, yet the volume of trading on CFDS on the day following a market rise increases substantially, while the opposite occurs on days when the market has fallen away. This indicates that those trading CFDs are very emotional and uncertain of the market direction, which in my opinion is a recipe for disaster. Remember, there is a saying in the share market that trading is the transference of money from the ignorant to the well informed and right now, it appears this is certainly the case in the CFD market.

So what can we expect in the market?

During five of the last six weeks, the All Ordinaries Index has closed lower with the market falling 7.27%. While the volatility has continued this week, the market has found some support and is rising which may see it close higher in only the second time in seven weeks. In my report last week I indicated that I expected the market to find support and rise briefly over one or possibly two weeks before falling away to between 6200 points and 6020 points by late December or January, and I still believe this is likely. That said given the erratic and unpredictable way in which the market has behaved in the last few months, anything is possible. Right now I recommend investors take a conservative approach until the market decides on a direction.

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