All Ords Report 17/11/2009

In the 2008 ASX share ownership study, it states that 58 per cent of people invest in shares to either make money or accumulate wealth. What is interesting about this is the fact that a large percentage of these investors seek their advice and information from newspapers and the internet, rather than from advisors or financial planners. Is this because individuals believe they are more equipped to make investment decisions than the experts, or is it because of a lack or confidence in the advice they may receive?

According to the survey more people rely on family, friends and colleagues for their source of advice rather than brokers, and use financial planners only slightly more than their family and friends. I am all for doing it yourself when it comes to investing, but in my experience many investors lack the knowledge and experience to fully understand how to manage a direct share portfolio. Quite often investors look in all the wrong places for advice and information - the end result being that they make emotional decisions rather than educated ones designed to achieve their outcome of wanting to make more money or accumulate wealth. As Albert Einstein once said “Education is the progressive realisation of our ignorance”

So what can we expect in the market?

In my last report I indicated that the move down into the recent low on 5 November occurred earlier than I had anticipated. I believe this is because of the extreme emotions evident in our market over the past year which has resulted in the All Ordinaries Index closely following the Dow. Generally the Dow has a shorter cycle than our market which means the All Ordinaries often runs to a different beat. Statistically our market has around a 60 per cent correlation to the Dow although right now this is much higher. Eventually this will change and things will revert to normal, and our market will move to its own rhythm once again. When it does, it will catch many investors and traders out.

I also mentioned in my last report that I thought it was possible we had seen the last of the down move and this now looks to be the case. The strong rise in the market over the past week looks to have signaled the end of the down move that we have experienced since 15 October. Confirmation of this came when the All Ordinaries Index fell away for one day last Friday (13 November) and held above the recent low of 4515 points on 5 November. The All Ordinaries Index has now turned to move up, rising strongly yesterday and it is highly likely to continue to rise today and into the near future.

As I have previously reported, I believe the market will rise to around 5200 points into January 2010 and possibly higher into February before moving down into its yearly low at the end of the first quarter of 2010. That said as the markets cycles have been shorter than normal, we need to expect that this could continue and that the next low could occur in January rather than March. For now, enjoy the rise and what looks likely to be a good Christmas as opposed to last years doom and gloom.

Until next time
Good luck and profitable trading

Dale Gillham
Chief Analyst