The massive pressure applied from the mining industry has seen a watered down version of the Minerals Resources Rent Tax pass through the lower house of parliament this week.

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Once the tax is passed through the upper house, I believe the government needs to shift their sights to another sector that does well off the backs of Australians, that is the banking sector. The Big Four Australian banks continue to announce record profits even in the wake of the GFC. In my opinion, the fact that these banks are making billions in profits in the current climate is evidence that Australians are still paying far too much for the essential services they provide.

Given how big and dominant our banks have become, the question remains is whether the current Australian government has the power to go up against these banks. History shows when challenged by government heads, the banks can and do raise interest rates over what is considered to be a fair margin above the rates set by the Reserve Bank of Australia (RBA). They then tell us the rise was necessary to cover their costs. Given that over the past 20 years banks have continued to fleece ordinary Australians, if the next shot is aimed at the banks I don’t think the public will rush to their defence.

What do we expect in the market?

The Australian share market has continued to pull back strongly to test support between 4100 and 4200 points. Regular readers would recall I have previously made mention of this level on a number of occasions, and whether or not it would hold.  Whilst the All Ordinaries traded through to the bottom of the range this week, it does not mean that a further decline will follow as in my opinion the market could still go either way. Let me explain…

The current volatile market sentiment opens up a situation for speculators and institutional traders where they can take advantage by distorting prices based on daily news emerging. Given this, it is important for anyone to wait for the reaction that may occur before drawing conclusions, as any move may just be a short term distortion rather than a trend emerging.

My analysis still indicates that the market may find support around current levels before a rebound occurs, as such, now is the time to be patient and consider how the current situation is similar to what unfolded in mid-2010 before a strong rise occured. Therefore my expectation is still that the market will turn up again very soon.

By Dale Gillham | Chief Analyst | Wealth Within

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