Is Afterpay and A2 Milk Expected to Fall Again?
By Dale Gillham |
Recent data released by Comsec listed both Afterpay (ASX: APT) and a2 Milk (ASX: A2M) in the top 5 most traded stocks two weeks ago with each making up 1.5 per cent of the trading volume. This indicates that retail traders are trying to grab a bargain while they are supposedly cheap, but could they just be catching a falling knife?
How far will Afterpay and a2Milk fall?
Afterpay has fallen nearly 50 per cent since February and over 21 per cent this calendar year, while the a2 Milk Company has fallen over 50 per cent this calendar year and over 70 per cent since mid-2020. That said, the increased trading on these stocks in recent weeks has halted their fall at least temporarily.
When good stocks fall heavily, it is common for investors to do two things: firstly, they attempt to buy a perceived “cheap” stock at what they believe is its lowest price, which is exceedingly hard to do and, secondly, some practice dollar cost averaging, which is an even worse strategy. In the last week, I have had emails from several investors who have taken it upon themselves to practice both of these strategies, which has resulted in them losing money and asking what they should do now.
In my opinion, retail investors speculating that a stock has stopped falling by looking at the current share price and comparing it to where it was is a flawed, high risk strategy. When it comes to Afterpay and a2 Milk, neither of these stocks have confirmed they have stopped falling in price and, as such, both stocks are likely to continue to fall.
If Afterpay falls below $81, it will likely fall to between $40 and $60 and if a2 Milk falls below $5, it will likely fall to around $2. Unfortunately, if retail investors continue to speculate, it is highly likely they will get caught out.
What were the best and worst performing sectors last week?
The best performer last week was Communication Services up 3.63 per cent followed by Consumer Discretionary up 3.19 per cent and Information Technology up 3.01 per cent. The worst performing sectors included Utilities down 0.97 per cent while Consumer Staples was up 0.69 per cent and Materials was up 1.38 per cent
The best performers in the ASX/S&P top 100 stocks included ALS up 11.31 per cent followed by Carsales.com up 10.38 per cent and REA Group up 7.64 while Seek Ltd is not far behind up 7.44 per cent. The worst performing stocks included Fisher & Paykel down 12.04 per cent followed by Worley down 4.59 per cent and Reece down 3.07 per cent.
What's next for the Australian share market?
In a surprise move, the Australian stock market rose 3.60 per cent over the last seven days to achieve a new all-time high. On six of those days, the stock market closed higher than it opened, which is a good sign, however, I am struggling to be overly bullish as I believe it is due to fall away again.
That said, the Australian market has been far from normal in the last year or so as it has shown no desire to fall away in what would be considered a normal market cycle. So, while it is possible for the market to continue to rise, as I mentioned in my previous report, my expectation is that the All Ordinaries Index will start to experience some volatility over the coming few weeks, which will see it trend down.
As a word of caution, while technology stocks have been bullish more recently with investors jumping in on the expectation of gaining a bargain, I believe these stocks will fall away again, therefore, I urge investors to be careful.
For now, good luck and good trading.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online at www.wealthwithin.com.au