Wealth Within - All Ords Report 17 June 2008
Babcock and Brown plummeted over 50% this week, which I believe is due, in part, to the short selling being undertaken by institutional traders who are using the negative market sentiment to drive down prices in the banking and investment sector. Short selling involves selling shares you do not own with the aim of buying the shares back at some point in the future to close out the position. When positions are closed out on a heavily sold stock, like BNB, the share will generally rise very quickly as buyers scramble to exit their short position.
So is it time for investors to grab a bargain? In my opinion the answer is a resounding no. While many would agree that BNB has been oversold and its value is worth far more than its current share price, I believe it is still too high risk, at least in the short term, to own this stock as is my opinion on many of our banks right now.
So what can we expect in the market?
The market has continued to fall away over the past two weeks indicating that investors are still very sensitive to economic and fundamental announcements. While the pullback has been longer in time and more in price that I was expecting, it does support my view in previous reports that investors need to be cautious and take a staged approach to entering the market.
Right now I don’t believe the market will fall below 5380 points and I expect it to find support and start rising again any day now. Of course, as we have seen over the past few months, the current market conditions are hard to predict and anything is possible. Given this investors still need to exercise caution, to only invest in quality shares and above all protect capital by using stop losses.
Until next time
Good luck and profitable trading.
Dale Gillham
Chief Analyst