Share Market Wrap Feb 1st 08

While newspapers are reporting a fall of 11 per cent on our market for the month of January based on the opening and closing prices, the market actually experienced a fall of 19 per cent given that it traded within a range of 1240.8 points from the high of 6462.8 points on 2 January to the low of 5222.0 points on 22 January.

Historically, there is only two months where the market has fallen 19% or greater. In October 1987 the market slid 47% from the high to the low before recovering what it lost over the next 6 years. However, unlike the economic conditions in 1987, the current economy is strong which is reflected in the strong fundamentals of many company’s.

The market also fell by 20% in October 1997 from high to low, although it recovered in around 5 months. While I expect the market to recover, how long it will take is unknown given the mixed messages about the true impact of the downturn in the US economy.

So what can we expect in the market?

As I said last week, if the market has had a short term low I expect it to rise for 4 to 6 weeks from the low of 5222.0 points, although the low is yet to be confirmed. So far we have seen it rise for 4 days to a high of 5887.90 on Tuesday 29 January, which is a good sign. Although over the next two days the market fell away again to test the low, which is a positive outcome as it will assist us determining the medium term direction of the market.

Whilst the recent move on our market is promising, now is not the time for investors to jump back into the market as we need to see it rise in a steady fashion over the coming weeks. I still expect short term jitters to provide some volatility over the coming days before the market rises to challenge 6000.0 points.

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