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What should investors be aware of around the end of the financial year?

There are actually two critical times in the financial year. The end of it and the half-way point. This is because companies are required in Australia to report their results twice each year. While there are quite a few exceptions, the most common reporting cycle is for the half year to december 31 and the full year to june 30.

The stock exchange requires companies to report their results within the two months following these dates, or the dates on which their books are closed for their accounting year and half year. Since most companies close their books on December 31 and June 30, this means that there are two so called "reporting seasons" each year: January February and July/august.

As you will be aware, it is a most difficult task to try to predict the results for the next half year or full year, even for directors and management. However, they are required to give the market warning when results look as though they will deviate markedly from previously, when they think the consensus of analyst estimates is well out of line or when events take place or information comes to hand that indicates a change in results. This is called "continuous disclosure".

However, continuous disclosure leaves great scope for insider knowledge to be better than the market's general view. These insiders trade on their knowledge. Some insiders cannot do this legally, but others can - for example suppliers, customers or competitors who know how the company is going by observing the marketplace. As each half year accounting period comes to an end, you will see some stocks trending up and some trending down for no apparent reason. While the market gets it wrong sometimes, it is amazing how uptrending stocks announce better than expected results and downtrending stocks announce worse than expected results.

Another thing to watch is the overall tone of the market. If the general opinion of analysts is that the economy has done better than expected, there is often a strong uptrend into January or July. The former is well known and called a "Santa Claus" rally. If the expectation is for a disappointing season of results, there is likely to be a downtrend. These trends develop towards the end of the half year, when the outcome is more certain and people become more confident. Maybe there are lots of rumours too, which run a fine line on insider trading.