Share Market Wrap 7th Sept 07

While I don’t subscribe to the theory that the Australian market always follows the Dow, I do agree it will react when major moves occur on the Dow. This is particularly the case when there is a large down movement on the Dow, even though our market tends to fall to a lesser extent in percentage terms - although this has not been the case in recent times. Let me explain.

The All Ordinaries index peaked on 13 July at 6469.20 points, whilst the Dow peaked on 17 July at 14,021.95 points. The Dow then proceeded to fall for 22 trading days and 10.73% while the All Ordinaries Index fell over 24 days and 15.12% into a low on 16 August. The Dow has since risen 7.80% in 12 trading days, whilst the All Ordinaries Index has risen 15.80% in 14 trading days. This proves that the All Ordinaries is much more volatile than the Dow at present. That said the Dow is not looking strong and there is a high probability the US market will have further falls; given this it would be wise for investors in the Australian market to be very cautious right now.

So what can we expect in the market?

The strong rise out of the low on 16 August has resulted in price moving one to two per cent above my original target although we are now moving into a crucial the time period that will determine whether the current rise is sustainable. As I have previously indicated, for the market to be bullish it needs to rise for at least 4 to 6 weeks and as of today it has only moved up for three weeks. If the market is going to fall it will most likely do so next week although there is still a possibility it will rise for another 3 weeks and then fall away. It is also possible that the All Ordinaries could make a new all time high, although I believe this is highly unlikely.

Historically September is the worst performing month on the Australian share market and I don’t believe we will see any difference this year given that I am expecting All Ordinaries to fall away into a low around 5000 points in the not to distant future.

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