Share Market Wrap 10th Nov 06

What a week we have had as official interest rates have risen once again and the T3 float has exceeded the government’s target. Given that a lot of people, who previously invested in Telstra, have lost a significant portion of their investment over many years, I am amazed that the float was so well received. That said may be I shouldn’t be that surprised given that, in my experience, many investors are happy to achieve average returns on their investments. While I am yet to read an analysts report which indicates that Telstra has good growth prospects, I believe many who bought T3 did so in the hope of the share rising in value – but I believe they will be waiting for quite some time.

What’s happening on the market?

Since 2003, the longest move in the Australian market from low to low was 27 weeks while the shortest was 16 weeks. Between 1997 and 2003 the shortest was 19 weeks and the longest was 31 weeks (into the low in March 03). So let’s compare this with what is happening now.

The current cycle has been unfolding for 21 weeks with the market continuing to close higher over the past 7 weeks, which has not occurred since 2003. Since 1997 only 50% of cycles have lasted longer than 21 weeks and 30% more than 24 weeks. Since 1997 every time the market has fallen into a low it has done so for at least 2 weeks, with most of the moves lasting 3 to 5 weeks.

Given these probabilities, it is highly likely that the market will start to fall away into a low very soon, which may have even started this week. When the market does fall, I expect it to trade down to between 5200 and 5000 points. I also expect the market to continue to be volatile this week and up to around 20 November, which means we will see some shares move strongly and possibly erratically in price.