The Australian market has risen strongly over the past 17 trading days since the low on 10 March and it looks as if the rise is set to continue. As a comparison, the market rose for 32 trading days following the previous long term low in March 2003 before falling for two weeks and then rising in the longest bull-run we have ever seen. But the question remains as to whether the market has actually bottomed or whether the current rebound is simply a bear market rally.
The announcement yesterday by the G20 has seen a positive reaction from world share markets, so we could see prices continue to rise at least in the short term. I believe the measures announced by the G20 are a positive move as we need to see a shift away from the dominance of the US economy on world markets to a more balanced global view.
So what can we expect in the market?
If we see a repeat of the move up from the low of March 2003, then the current bullish move will last until around 23 April and trade to between 3800 and 3900 points. That said we still need to be prepared for the market to fall away to test the low, which I expect will occur this month. I believe the move down will last for around one or two weeks before the market rises again to around 4200 points with my preferred target at around 4500 points in May or June.
The market has continued to trade on higher volumes over the past few weeks, which is a positive sign. When the market does fall to test the low however, it would be good to see volume also fall away as this would indicate that any down move will be short term. The best and safest opportunities in the market right now are in the top 50 shares. I would caution people from investing in stocks outside the top 100 as these will be more volatile, unpredictable and subject to false moves.
Dale Gillham
Chief Analyst
Wealth Within
