Share Market Wrap9th March 07

The last two weeks on the Australian market have been very interesting given that we had the biggest one day fall in the market since September 11 2001 followed by another significant fall on Monday of this week, with the total fall for the period around 7%. What was even more interesting, however, was the contradiction from industry analysts about what the market was actually doing and what it is likely to do in the future. Remember it was only about three weeks ago when the All Ordinaries Index broke above 6000 points and many analysts were speculating that the market would trade above 7000 points this year. Now these same analysts are speculating about a market crash. No wonder the average mum and dad investor is confused about the share market.

So what’s happening on the market?

Last week I indicated that it was possible that the market would continue to fall for another week, although I believed it would more than likely trade up. While the market did trade lower on Monday to confirm a second down week, it has since recovered over the last three days and as of mid morning today it looks as though the market will close higher this week than it did last week. Given this I believe the market will move up next week and possibly for at least another two to four weeks.

Given the large falls over the past two weeks my thoughts for the medium term have changed slightly. If the market fails to make a new all time high over the next three weeks, it is likely that the current all time high is the yearly high and possibly the four year high that I have been expecting. If this is the case then the market will start falling into its yearly and four yearly cycle lows over the next month, therefore we need to be prepared for a down move that will last longer than two weeks and more than 7% in price. Given the uncertainty in the market at the moment, it is wise to be conservative in the shares you select and to pull back on any leveraging you may be exposed to.

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