Wealth Within - All Ords Report 29 July 2008
A few weeks ago I indicated that the rising price of oil was based more on speculation rather than supply and demand. I also pointed to the price of oil peaking this year, with prices likely to fall over the next one to two years to around $70 a barrel. In the last two weeks the US government has introduced plans to reduce the speculation on oil prices, which has subsequently seen the price of oil fall heavily. While it is still too early to confirm whether oil has peaked, the signs are very encouraging. If it does start to move down, I don’t believe it will be a swift retreat, rather I expect it will be steady decline over the next 12 months to two years.
It is possible that the price of some energy shares may be affected by the falling oil prices, although this remains to be seen as it will depend on whether the Australian dollar maintains its current highs against the US dollar. Over the past two years we have been shielded, to some degree, from higher petrol prices because of the strong Australian dollar but if we are to see petrol prices fall, we need the Australian dollar remain high whilst oil prices fall.
So what can we expect in the market?
In my last report I indicated that I expected the market to find support and rise although I indicated that the rise would be short lived. As we know the All Ordinaries index fell to a low of 4880 on Wednesday 16 July before rising strongly to reach a high of 5209.60 on Wednesday 23 July. My expectation was that the move up from the low of 4880 points would last between one to four weeks before falling away one last time in a final exhaustion of the down move, which the market now appears to be doing.
For the market to prove it is bullish again, we need to see it hold above 4880 points. Currently the medium term direction of the market is uncertain, as it is still possible it could fall away to trade around 4300 points, which is the next support level on the All Ordinaries Index.
Remember, until the market proves it is bullish, we need to assume that it will continue to be bearish. Given that the market has yet to prove it is bullish, is it is far safer to sit and watch it unfold before making any decisions. Once the market confirms it is bullish there will be many opportunities to profit in top blue chip shares during the remainder of the year.
Until next time
Good luck and profitable trading.
Dale Gillham
Chief Analyst