Share Market Wrap 9th Feb 07

Regardless of whether the Macquarie lead buyout of Qantas receives the support of the government, the question that remains is whether Qantas is a good investment? From a technical perspective Qantas is a volatile stock that has erratic moves in price. You only have to look at the fact that after achieving an all time high of $5.40 in August 1999 the share fell by more than 50% in price before trading sideways for many years. Shareholders had to wait until June 2006 before the stock eventually gained momentum, rising around 84% in price over the last 6 months to trade back up to $5.40. Given this, anyone holding this stock during this period would have only received dividends, which in my opinion is not a good investment. Even if you held the stock since it floated in 1995, you would have only achieved a return in capital growth of approximately what Macquarie Bank pay on their cash management account. If the buyout goes through, hopefully Macquarie will be able create better share holder value.

So what’s happening on the market this week?

As expected the market has risen strongly making new all time highs and my expectation is that this trend will continue at least in the next week. That said, given that reporting season is upon us, we may see some real volatility in the market over the next week.

As a technical analyst I study chart patterns, price movements and many other factors when assessing a share and it is interesting to see many of the large companies have been trading below their major highs over the past few weeks, while others have been doing this for quite some time. The reason this interests me is because the larger companies are often a leading indicator of the market, which means if we see them pull back it indicates that the prevailing trend may end soon. A good example of this was Newscorp, when it fell from February 1987 into the crash in October.

For now the market is bullish, and we need assume it will continue to be so until it indicates otherwise. That said we need to be cognisant of the signposts that are becoming more evident which indicate the bull market may be ending.

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