Share Market Wrap 29 Feb 08

I have said it before and I will say it again, it seems that we fail to learn from our past mistakes. One of the biggest issues I find continually perpetuated in our industry is the use or overuse of leveraging to invest. In January of this year the market experienced record levels of margin lending calls, which was also prevalent 6 months earlier in August 2007 and again 12 months prior in June 2006.

This week the share price of ABC learning centres was decimated as a result of the company’s over use of debt, and the share holders are paying dearly. While borrowing to invest is a valuable tool for investors and businesses alike, it needs to be made very clear about the downside of using this facility. In my opinion, investors should not be allowed to borrow up to their limit and there should always be room for fluctuations in the market in case the worst occurs. If this were to happen, then margin calls could become a thing of the past.

So what can we expect in the market?

Last week I mentioned that I was expecting some direction in the market very soon, and it appears as though it may be rising given that during three of the last four days the market has closed higher, with the All Ordinaries Index reaching its highest level since earlier this month. That said, the market fell away yesterday and it is quite possible it will continue down today although I don’t expect this down move to be strong or to last too long.

For the market to prove it is bullish, at least in the short term, we need to see it rise above 6057 points in the next week, which is a strong possibility given what has occurred this week. If it does rise to this price level, it may indicate we are starting the next bull-run.

While my bias is beginning to swing from being bearish to bullish in the short term, investors still need to be patient and to be sure of the market direction before making any investment decisions. Given the erratic nature of our market over the past few months, in which anything could and did happen, we need to be prepared in case the market does fall away.

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