Share Market Wrap 5th Oct 07

To say that the rise in the Australian share market over the past seven weeks has been interesting would be an understatement. Since the low of 5490.80 points achieved on 16 August the market has risen around 22 per cent in 33 trading days. To put this in perspective, the final run up into the peak prior to the 1987 crash lasted 63 trading days, rising around 32.97 per cent.

If we compare these two periods, the current market has risen two thirds of the distance in price in around half the time. What is concerning is that I cannot find one period in the last 25 years in which the market has moved this fast in price. Right now many investors are behaving emotionally and investing in shares based on the fear of missing out, whilst most fund managers are sitting on high levels of cash. Given this, you have to ask who is making the right investment decisions.

So what is happening on the market?

Currently, the market is showing signs of weakness given that it closed lower on both Wednesday and Thursday of this week, which could be the start of the pull back I indicated I was expecting in my last report. How long the market falls in time and price is critical in determining whether it will continue to be bullish in the medium term.

If the market is bullish, I expect it will only fall a few per cent in price over one or possibly two weeks. Right now I would encourage investors to be patient rather than to react emotionally given that investing in the share market is a medium to long term investment.

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