Share Market Wrap 4th May 07

It’s May and that means the budget is due this month, so what does it mean for investors in the share market? Given that the federal election is also due this year it is likely that the budget will be designed to increase votes rather than focus on the real issues that need to be addressed in this country. Given that business confidence supports the growth of the share market, if the budget takes a caretaker approach, businesses may not have the confidence they need to continue growing and expanding. Therefore they may consolidate or defer expansion until they have more certainty on who is going to be in government and what the economy will be like.

This has the potential to slow down the growth of the share market and possibly even see it fall away. No doubt the focus of the budget will be about keeping inflation in check, which means keeping economic growth at acceptable levels. What worries me is that this year’s budget may go overboard in trying to keep inflation down simply to win votes which may have a greater impact on share market than we might otherwise expect.

So what is happening on the market?

The market continued to fall away earlier this week as expected, however, on Wednesday it turned to trade up strongly resulting in the All Ordinaries Index breaking above the previous all time high on Thursday. In previous reports I stated that I expected the market to travel down for 2 to 4 weeks from the all time high set on 18 April, and up until Wednesday, it had moved down for 8 days which is slightly short of my target. While this is a concern, what bothers me even more is the fact that the fall was not that significant and therefore failed to reach the price target I was expecting.

So what can we expect from here? It is likely that the market will continue to rise over the next few weeks before we see a much larger fall possibly into June or maybe July. While the market could still fall away over the next few weeks to achieve my original price target, I believe this is less likely given that the market has made a new all time high.

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