Share Market Wrap 1st Dec 06

During November, and for much of this year, the big movers in the Australian share market have been the smaller companies, with the Small Ordinaries Index (XSO) rising 24.57% from 1 Jan 06 to 30 Nov 06. This is in contrast to the All Ordinaries Index (XAO) which only rose 16.01%, the ASX Top 50 (XFL) which rose 14.10% and the ASX Top 20 (XTL) which rose 13.42%.   

So what does this mean? If we study the history of bull runs on our market, it is evident that the resource sector is always the last to rise and because of investor confidence, it is the generally the more speculative resource shares that provide the best returns. What is interesting is the fact that the top 20 shares (XTL) contribute to 50% of the Australian market, yet this is the only index that did not make a new all time high in November.

So what’s happening on the market this week?

Given the large swings in the All Ords this week, the volatility in the market has continued rather than dissipate as I was expecting. From 7 Nov to 20 Nov the market fell into a low, which I expected would continue for at least another 1 to 3 weeks, however, since 20 Nov the market has risen to achieve a new all time only yesterday (30 Nov), which means we are now in week 24 of the current up move.

Despite this, I still don’t believe the fall into the low was significant enough in terms of either price or time; therefore I am still expecting the market to pull back and possibly fall strongly below the low of 20 Nov and reach my original target of between 5200 and 5000 points. That said it is important to always trade on what we know rather than what we think and given that the market is continuing its bullish run we need to assume that it will continue to rise until it indicates otherwise.