Wealth Within - All Ords Report 12 August 2008
Last week the reserve bank has hinted at a possible rate cut in the near future, and with oil prices falling heavily over the past few weeks, it appears as though the table may be turning for consumers. While it is still too early to determine whether the worst is over, any reduction in the cost of living has to be beneficial for the economy and the share market.
That said it is important to understand that high levels of borrowing has fuelled the sub prime mortgage meltdown and over the past two decades Australians have taken on increasingly levels of debt to the point that we are now in a negative savings pattern. Given this, it is possible that we as a country may have our own mortgage meltdown not unlike what occurred in the US sometime in the future. Given this, I would highly recommend consumers use extra cash flow to reduce debt levels in the coming years and be more conservative in the future when using leverage.
So what can we expect in the market?
In my last report I indicated that I expected the market to fall away one last time in a final exhaustion of the down move. I believe this may have occurred last week with All Ordinaries index falling to a low of 4829 points on Tuesday 5 August, which is in line with my target of 4800 points. Since then it has risen strongly to reach a high of 5096 as of yesterday (Monday 11 August).
It is possible that the low on Tuesday 5 August is the low that I have been expecting, however, it is still too early to tell as it is possible the market could fall away to my lower target of 4300 points over the next couple of weeks.
For the market to prove it is bullish again, we need to see it hold above the low of 4829 points from last Tuesday and rise over the next month. Right now it is far safer to sit and watch the market unfold before making any decisions. There are many solid shares showing positive signs that they will trend up in the near future, but before we start buying we need to confirm the market is bullish. Again I encourage investors to sit tight as you will be rewarded for your patience.
Until next time
Good luck and profitable trading.
Dale Gillham
Chief Analyst