Australian Share Market Continues Decline, 52 Week Low Within Range

Are you a buyer or a seller today? If you're running one of Australia's big banks, are you buying your own shares? One of the signs that the Australian share market has bottomed will be when insiders step in and buy. They tend to view 20% sell-offs in the share market as a great time to get your own shares on sale.

We're not so sure. Friday's weak close in the U.S. doesn't give the Australian share market a good lead to follow. Monday is a public holiday in America, so it will be a full day before we see if the U.S. market resumes its slide. It probably will.

"What could cause greater economic losses or fallout in the market would be further recognized losses or downgrades in the financial sector," said economist Joe Davis at Vanguard. "That is the heart of the problem and where the greatest risks lie." Indeed. The heart of the bull market was the financial sector. It turns out that heart was mostly rotten.

Abbey Joseph Cohen at Goldman Sachs (NYSE: GS) - whom we've long suspected is actually an animatronic soldier in Wall Street's PR war to keep investors buying-says the market could finish the year up 22%. Markets can be driven higher by a number of things. corporate earnings, news events, or Pavlovian dip-buying by well-trained investors. Right now, investors are trying to discount a recession in the U.S., reckoning how much it will affect earnings there, here, and everywhere.

Cohen told the New York Times that once a U.S. recession was factored into share prices, it would be clear sailing to 14,750. A twenty percent rally in the All Ords from where it sits as we write (5,724) would take it all the way up to 6,983. On the other hand, the Australian share market is within spitting distance of making a new 52-week low if it closes below 5,490.

You look around and there aren't a lot of compelling reasons to buy aggressively into this market. That itself might be a good sign if the bear market in credit was over, or of its affects were isolated to a certain few sectors. But the bear market in credit isn't over. And without newly created money finding its way (via carry trades) into the Aussie market, the main source of buying will be from superannuation funds.

Dan Denning
The Daily Reckoning Australia

VN:F [1.7.5_995]
Rating: 0.0/10 (0 votes cast)
VN:F [1.7.5_995]
Rating: 0 (from 0 votes)

P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Related Articles:

  • None Found

About the Author

DanDan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). Dan draws on his network of global contacts from his base in Melbourne. He’s the managing editor of resource newsletter Diggers and Drillers and the editor of The Daily Reckoning Australia.

See All Posts by This Author

Post a Response

Comment moderation policy: Port Phillip Publishing supports free speech and frank and open conversation. But we reserve the right to modify or delete your comments if we consider them to be offensive or in violation of any laws, including Australia's anti-discrimination laws

By submitting your comment you agree to adhere to our comment policy.


© Copyright The Daily Reckoning Australia & Port Phillip Publishing Pty LTD 2010 All rights reserved.

Port Phillip Publishing Pty Ltd holds an Australian Financial Services License: 323 988. View our Financial Services Guide.

ACN: 117 765 009 ABN: 33 117 765 009

Port Phillip Publishing
Attn: Daily Reckoning Australia
PO Box 899
Braeside
VIC 3195

Tel: 1300 667 481
Fax: (03) 9558 2219