All Ords Report 29 September 2015
Itís been around 18 years since the Asian Financial Crisis sent shock waves through the Australian market. Given the recent sell-off, are we seeing a repeat of the past, and is the worst over for our share market?
Firstly, history does repeat, and markets are cyclical, which leads to major falls in equity prices around every 18 and 40 years. So while economists may say that the current circumstances in Asia differ from that of 18 years ago, there are some similarities with Asia being in the spotlight once again; talk of currency wars, debt, and lower growth. But what does all of this mean for investors?
We could spend hours dissecting economic reports, but how often do economists actually get it right? And rather than you obtaining an economics degree, a better way to see what is going on is to learn how to read a price chart. Price charts demonstrate how market movements repeat in time and by similar degree. Having a basic knowledge will help you to make more informed decisions about your investments. So what does the price chart of the Australian market show?
The fallout from the Asian crisis in the late 90ís created two major dips on our market; between 17.5 and 21 per cent. Given this, and as the recent decline (18 years later) equates to 17 per cent, price and time are pointing to a turn. This means either the low is already in, or itís just weeks away.
At the Wealth Within Institute you can learn how cycles occur on the markets and stocks you are interested in.
If you are a trader the worst thing you can do at a time like this is turn away from the market. That is what the herd does, as fear is driving decision making. The best thing to do is to draw on your knowledge and bring your analysis up to date. Have your checks and balances done, and when the market stops falling and turns you will be ready to profit from the opportunities.
Of course this doesnít mean to try to pick lows and jump in before a turn is confirmed. For regular readers you know that I believe such a practice is high risk. I often find traders do this because they are fearful of missing out on the next rise. However, trading this way typically means they are whipped in and out of trades, which not only puts a dent in their financial bank account, it hits their psychological bank account and this can continue to impact on future trades.
Remember, if you have solid rules and the discipline to watch your stocks, wait for the next turn to be confirmed and for your rules to trigger, then the probability of success is on your side.
Learn how to determine the most appropriate rules to trade stocks on your watch list, so that you can trade short, medium, or long term by gaining a quality education.
What do we expect in the market?
This week, the All Ordinaries Index (XAO) experienced a choppy ride, dipping below 5100 points before making a slight recovery back above this level. Interestingly, the market has continued to trade sideways following the low in August at 4936 points.
A strong close at the end of any week above 5237 points will significantly increase the probability that the market made its low in August. Alternatively, a strong weekly close below 5000 points would mean the market is likely to find support just below this level in coming weeks.
Yesterday the market rose strongly, however, today the Australian share market has moved in reverse due to further concerns over Chinese growth, and mixed data from the US. The Australian dollar moved back below $0.70, which is good news for exporters, and brings the price closer to my target at around $0.68.
Interestingly, last week the FED chose not to raise rates and many commentators who had heralded that the sky would fall in when rates started to rise were still not happy, essentially because the rise has simply been delayed. Janet Yellen must be thinking Ďdamned if you do, damned if you donítí.
Dale Gillham is Chief Analyst at Wealth Within