Share Market Wrap 25th Jan 08

The landscape of the Australian market is very different today given the speed with which information travels. Since the 1990’s we have been able to borrow money, trade shares, options, warrants and more recently CFDs over the internet without any advice from an experienced professional. The reality is that traders can gain $100,000 exposure to the market for as little as $5,000 cash. But the concerning issue with this is that they can do it with little or no knowledge other than a desire for profit.

There has been an over reaction to the recent market pull back resulting in many traders and investors responding emotionally rather than rationally. Prior to the introduction of the internet, investors had no option but to talk to a professional before making investment decisions, and I strongly believe that much of the over reaction in the past week would have been negated if they had taken this option. We know the internet is here to stay, but the bottom line is if an investor or trader wants to succeed in the share market they need to educate themselves.

So what can we expect in the market?

What a week it has been in the market. Last week I indicated that if the market continued to fall, the less likely it was that the 4 year low was in August 2007, and the more likely it was that the All Ordinaries would fall to around 5200 points. As we know, the market fell to 5222 on Tuesday 22 January 2008 and has since traded up. Given this, it is possible that this may be the 4 year low, although this is unconfirmed at this stage.

Trying to pick the bottom in order to buy shares at cheaper prices is very dangerous right now because until we can confirm the low, there is a possibility that the market could fall further. I also indicated last week that I have been expecting a short term low, and if this has just occurred the market should rise for at least 4 to 6 weeks although if it is also the 4 year low, we will see a rise for at least 8 months.

Given the speed with which the market fell over the past two weeks, it is possible that it will turn down again and possibly fall to below 4800 points. Given this, I highly recommend investors take a wait and see attitude over the coming week until the dust settles.

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