Share Market Wrap 18th Jan 08

I have mentioned in previous reports, back to June 07, that the market has been unfolding in very unusual ways and this is occurring again right now given that as of yesterday the market has closed lower for the last 9 consecutive days. If we review our market back to 1982, this has never occurred before except in mid-1990 when it closed lower than it opened over 10 consecutive days as the market fell into a 4 year low in January 1991.

Even events such as the Asia crisis, the tech wreck and Sep 11 did not cause the market to behave in its current manner. So what is forcing this market lower? I firmly believe it is the hedge funds short selling in the market in order to profit from the so-called ailing US economy. The unfortunate by product of this is that it costs average Australian’s dearly as their superannuation plummets.

Interestingly, while the Dow has already fallen below its August 2007 low, our market has not which indicates it is much stronger. What we know is that these periods do not last very long because the hedge funds will eventually buy back the shares to cover their positions and when this occurs the market will rebound strongly.

So what can we expect in the market?

Last week I believed the short term low I have been expecting would occur soon; however, rather than find support and rise this week, the market has continued to fall to below 5850 points, with no signs of stopping. The depth of the market has fallen in price but the length in time it has fallen over is abnormal and unexpected. The longer and deeper this fall continues, the less likely it is that the 4 year low occurred in August 2007, and the more we can expect the All Ordinaries to fall to around 5200 points.

Either way, the current bearish conditions will not last much longer and we should see the market rise for a minimum of 2 to 4 weeks very soon. I still believe our market will be bullish over the next one to two years, however, given what has happened in the last few weeks we may need to wait a little longer for the bull-run to resume.

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