All Ords Report 03/06/2009

The collapse of Great Southern Plantation and Timbercorp raises concerns as to how two companies with similar investments could fall from grace so quickly. It also begs the question whether these types of investments should even be considered by investors. These products are generally offered as a tax incentive scheme by accountants and financial planners to enable investors to offset capital gains, however, it is questionable whether these schemes actually constitute tax avoidance or tax minimisation.

In my opinion any worthwhile investment should be assessed based on two simple criteria: the ability to generate capital gain and income with tax being the last consideration. An investment that has tax included to make it appear attractive, suggests that the investment may not be as good as it should be. I would never consider buying an investment property or investing in the share market unless I could achieve adequate levels of capital growth and income. In my opinion, investors who invest in tax incentive schemes are speculating on the potential profit that may or may not occur.

So what can we expect in the market?

In my last report I indicated that the low of 3703.70 which occurred on 18 May 09 may be the short term low I was expecting but it was yet to be confirmed. This is now the case and the market has returned to being bullish, at least in the short term. I expect the All Ordinaries Index to rise over the next 2 to 4 weeks from its current level through to 4200 points and beyond before experiencing a small pull back between 18 June and early July.

If the rise is strong over the next few weeks, my target for the yearly high is around 4500 points by late July although it is possible that the market could rise to 4900 points but only time will tell. Over the past three trading days (to 2 June), the market has displayed signs that it is strong, rising over 5 per cent during that time, suggesting that the current move could reach my top target.

Right now the market is presenting some great opportunities to purchase good quality blue chip shares with the banks likely to run another 10 to 20 per cent. That said I do not believe the banks will fair well with the fall into the yearly low in September and could fall heavily given the short selling ban was lifted last week. As always if you decide to buy I recommend you set your stop loss no more than 15 per cent below your entry price.

Until next time
Good luck and profitable trading

Dale Gillham
Chief Analyst