All Ords Report 29 June 2016
The Australian market looks like ending the financial year exactly where it started, yet the mid-cap 50 index rose 15%, with some stocks like Cochlear rising by around 50%, and Aristocrat 71%, showing it really pays to be an active investor rather than a passive one like the majority of investors.
Every week, people new to the market tell me they are fearful of it and of losing, and so either avoid the market or choose a passive approach to investing. Yet investing safely is exceptionally simple and only takes a little bit of time and knowledge.
Hereís what you need to know....
The challenge is that most people are concentrating on the wrong things and this leads them to miss opportunities. Focusing on what you can do is far better and more effective than focusing on what you canít do. Sometimes itís that we donít know what we donít know. However, the opportunities will come your way if you take action and start thinking differently today.
For example, the simplest, and one of the most effective, tools that anyone can use to buy and sell shares is a trend line, and before you ask, yes, using a trend line on a monthly bar chart as I teach in my book, would have seen investors get into the above two stocks early on along the rise.
I started with a ruler and a pencil, and if I could do it so can you. My broker would fax me a weekly bar chart of the companies I was interested in and I would draw the trend lines to find the stocks to buy and sell.
Add a simple stop loss to your trend line rules and you have a very simple system of consistently making money in shares.
The trick is to look at really good shares that have been falling consistently, draw some trend lines on them, sit back and wait for the price to move strongly above your trend line and then buy.
Pretty simple really!
How many strategies you want to learn depends on you. You can start with the basics, or if you are very serious about making money click here to see what you can do.
What do we expect in the market?
Prior to last Friday, the Australian market had risen for five out of the past six trading days by around 2.5%. The last time our market made a move like that was back in April where it rose for eight days and 6.5%.
You will remember, I suggested that the prior move down to around 5200 points was Ďnormalí, however, since the Brexit surprise the market has pulled back slightly lower. All the talk of Brexit is, in my opinion, a distraction for Australian investors.
Whilst our market did react poorly to the news that the UK will exit from the European Union and it may take a couple of years, there is nothing I see that will stop our market doing what it was going to do anyway.
In case you havenít paid a lot of attention to whatís going on in Europe, which has probably been hard for most to ignore given that the news has constantly been pushed in our faces, I wanted to bring to your attention one interesting point around this whole issue of the EU system.
Currently, financial institutions operating in the EU require only a single licence and a standard set of operating rules. However, with the exit of the UK from the EU many financial institutions operating out of the UK, with dealings in Europe, are likely to be impacted, as it is unlikely for these companies to do business as easily in the region.
You may recall that National Australia Bank (NAB) sold Clydesdale bank some time back. Now while the timing of the exit wasnít great for shareholders because they lost money from the deal, as it turned out, it would have been a lot worse for NAB if it didnít divest its interest in this company.
QBE Insurance Group Limited (QBE) is just one stock in the financial sector that has felt the impact of the UK exit. It has fallen by around 16.5% since it opened on Friday morning, to yesterdayís low. Whereas, a number of shares in the property sector, such as Stockland Trust Group (SGP) have instead risen.
The sell-off continued for some shares yesterday, partly because this was the last day for investors to sell shares and have them settle before 30 June. Recent changes to the Australian Stock Exchange rules require trades to settle in T+2 days, meaning the day of trade plus two days. Therefore, some of the selling on the market yesterday would be from this activity.
The market can change direction quickly, and now we wait for the sellers to exhaust themselves and for the market to settle down and find support. As mentioned previously, 5000 and 5150 are important levels for our market and at the time of writing, the market appears likely to find support here before the trend continues up. If this occurs, the market is likely to rise strongly in the second half and eventually move back above 5500 points.
Dale Gillham is Chief Analyst at Wealth Within