Share Market Wrap 31st Aug 07

This week the horse flu virus has put the racing industry on hold, which for some may not be a big deal; however, the racing industry is big business and when racing meetings are cancelled companies lose profits, which in turn effects share prices.

This week Tabcorp’s share price has fallen 6% as a direct result of the flu virus. What may not be totally evident is flow on effect that will occur if the virus continues to stop race meetings. For example, revenues will be affected for companies such as Spotless who provide catering services to race meetings. Potential revenues will also be affected in other industries including TV and radio advertising, Pubs, taxi’s, airlines, hotels, restaurants and the like. Given this, it would be wise right now to be a little cautious about buying shares that are directly related to services that support the horse racing industry, and if the situation continues for an extended period, companies that are indirectly related.

So what’s happening on the market?

The market has continued to behave erratically this week as it rose strongly on Monday to a high of 6199 points only to fall away on Tuesday and Wednesday, whilst the rise on Thursday showed definite signs of weakness. Currently the All Ordinaries Index is finding resistance just below 6200 points, which is a level that has stopped the market from rising three times over the past month. I expected the market to rise to around 6260 before it fell away again, however, given how the market has unfolded this week we may see it fall away sooner rather than later.

Again I want to reiterate that even though the market has risen strongly out of the low of 5490 from 16 August, we are still yet to confirm it has stopped falling. Therefore it is best to be conservative right now and to keep your money in cash until we can confirm the direction of the market.

Right now there is high probability the All Ordinaries Index will fall away into a low around 5000 points in the not to distant future. That said the market could also break above the 6200 point level and keep rising. But as I have previously indicated, for the market to confirm it is bullish we need to see it rise for at least 4 to 6 weeks.

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