All Ords Report 28/08/2012

This past few weeks we have seen our banks post what some might call obscene profits, yet at the same time we are seeing weekly news of Australians losing jobs (including bank staff), companies going into liquidation, rising mortgage delinquency rates and a mining industry slowing down. So is Australia in a two speed economy? It certainly looks like it however I think the two speeds are where there is one economy for the banks and one for everyone else. This has never been more evident, especially when you consider that the banks failed to fully pass on the RBAs last rate cut citing amongst other things rising costs.

I am all for profitable business and especially profitable banks as this lends stability to our economy and share market. However, I would argue that banks have an unhealthy stranglehold on Australians, after all, everything we do involves a bank somewhere along the line, either via credit cards, bank accounts and home or other loans. This strangle hold is fuelled by the banks who know that if they make it easy for us to borrow money, the more we will get in debt to buy our house, car or other items of desire. This creates on mass a legion of people who are emotionally tied to working hard to pay debt off, as in general the banks know we will do anything to ensure that we make our mortgage payments and other payments so as not to default on our loans. It all gets down to the fact that the man who has the money makes the rules and the rules always suit the man with the money so he can make more.

So what do we expect in the market?

Even though we have seen some mixed news in our market the past few weeks as we move through reporting company season it has continued to move up, reaching a high of 4430 last week. This is the fourth straight week that our market has risen and eleven weeks since our last low, the rise has also seen the market move into the target zone for the current rise that I talked about in my last report. Whilst this is good news markets don’t continually rise, just as they don’t fall continually. It is for this simple reason that I would not be surprised to see the market start to fall away in the next few weeks. If we look at how the market has risen in the past four weeks, we see that apart from one strong weekly rise the move has been one of caution and indecision, with the market pulling back from the weekly high on three of the four weeks.

Personally I would like to see the market move through resistance at around 4500 points before the falling away as this would auger well for further rises beyond a the expected short decline into September/October. If that does not occur then we might get further downside pressure on the market, as such right now might be a good time to look for weakness in the market to take some profits, especially if the 4500 point level is not broken this week or next.

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Until next time
Good luck and profitable trading

Dale Gillham
Chief Analyst