Share Market Wrap 27th Oct 06

Over the last few weeks financial analysts have been encouraging the public to buy Telstra because they claim it is cheap and a good long term investment since it pays a solid dividend. But how cheap is cheap? Is a stock that is falling in value really cheap? I remember reading reports claiming Telstra was cheap at $6 and then again $4; so the question you have to ask is cheap in comparison to what?  Let’s face it, you don’t get rich chasing a dividend yield and I can’t comprehend buying a share now in the hope of getting a good return in 3 to 5 years, as there are plenty of other shares that pay good dividends and are rising in price like City Pacific that has risen 47% in the last 7 months and pays a fully franked dividend of 9.34% or Zinifex that has risen 105% this year and pays a fully franked dividend of 7.9%. Colorado is another example of a good stock that has risen 30% since mid June and pays a fully franked dividend of 7.37%. If you ask me, the only people really pushing this stock are the ones who stand to gain something. 

 So what is happening on the market?

Last week the All Ordinaries Index broke above my previous target levels as it continued to trade up strongly. I recently indicated that there was a high probability that the market would peak around the 15th to 20th of October; however, it now appears as though this won’t occur until the 27th to 31st of October given that the market broke through the previous all time high of 5352.10 achieved on 10 May 06, on 26 October 2006.  I believe this is a false break that could catch many traders out as I am still expecting the market to fall away for at least two to four weeks into a low with price falling to between 5200 pts and 5000 points around the 15th to 22nd of November. You will most likely see more volatility in the market from late this week to mid November which means we will see some shares move strongly and possibly erratically in price.