>Next Tuesday the RBA will meet again and it is almost certain, given the current economic conditions, that the official interest rate will be reduced. It is also likely that we will see further cuts over the next year which is exciting news for those who currently hold high levels of debt.
Reducing interest rates will go a long way to restoring business and consumer confidence, and with the increased confidence we can expect share prices to rise. While this is positive, investors have been hit hard over the past 12 months, and their confidence will take some time to restore. Historically, investors tend to let their emotions override logic, which then affects their ability to make rational decisions in regard to the management of their portfolio. While many investors have rightly exited the market during these volatile times, unfortunately many will wait too long before considering the opportunity to get back in, which is usually after the profits have been taken by the wise and educated.
So what can we expect in the share market?
Last week I indicated that the All Ordinaries Index was displaying signs of indecision, and that it could not continue to stand still as it had done over the previous 4 weeks. This week it appears as though the market has finally decided on a direction and the good news is it is up. But the question on most people’s mind is this just another short term run or is the upward move sustainable?
Today the market has traded to its highest levels in a month; therefore I believe in the short term it will continue to rise for the next 1 to 4 weeks before it moves down again. Right now the longer the move up in both price and time the better. It is still too early to confirm that the low of 4829 points on 5 August is the long term low I have been expecting, but if it is then get ready for a 12 to 18 month bull market. Although I am now more bullish in my outlook, caution still needs to be exercised as it is possible that the current move up is a suckers rally and that the market could fall to my next price target of 4300 points.
This report is from Dale Gillham , chief analyst of share investment company Wealth Within and a regular contributor to Finance ViewPoint.
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