Will the Australian Stock Market Continue to Fall?

The events of the last two years have created a perfect environment for the growth of speculative investments with cryptocurrencies topping the list. That said, as individuals are opting to work from home, it has meant they have more free time or, at least, more flexible time, which has resulted in many chasing other income sources with the stock market being the easiest and most attractive.

The No. 1 criteria is to manage risk with your investments

However, far too many are relying on chat forums or watching YouTube videos to get their next hot tip and I don’t need to remind people how this usually plays out. While cryptocurrencies have boomed with a number of coin offerings, now non-fungible tokens have also become popular.

Nevertheless, when it comes to investing, it is important to consider whether the investment meets a number of sound risk criteria regardless of the market, otherwise you are just gambling with your money. Sadly, this is what has unfolded for a lot of individuals over the last two years resulting in ASIC recently launching a crackdown on the ramping of stocks to unsuspecting investors. Unfortunately, these same practices are also prevalent with crypto and coin offerings.

To reinforce the point of how speculative coin offerings can be, I was recently invited to invest in a coin offering that was listing at around $0.55. Today it is trading at a fraction of a cent and while they have tried to ramp the coin, which meant I could have made some good money, the risk of investing in the first place was just too high. Remember, this market is not regulated, so you are taking some serious risks with your money.

Even when it comes to Bitcoin, where the majority believe they can’t lose, it is not as exciting as you might think. Would it surprise you to know that anyone who invested in Bitcoin in February of last year would be losing or breaking even today? Yet, if you invested in January of last year you might be sitting on around a 30 per cent profit today.

That said, Bitcoin does look weak and is likely to fall further in the coming weeks and months, so it is likely any profits will be eroded. Therefore, even with the largest cryptocurrency, the buy and forget strategy is not the best approach. Investors need to be informed and educated to manage their risk regardless of the investment.

What were the best and worst performing sectors last week?

The best performing sectors included Materials up 4.67 per cent followed by Energy up 4.10 per cent and Utilities up 3.57 per cent. The worst performing sectors included Consumer Staples down 5.54 per cent followed by Information Technology down 4.64 per cent and Consumer Discretionary down 4.53 per cent.

The best performers in the S&P/ASX top 100 stocks include AGL up 18.95 per cent followed by Mineral Resources up 11.13 per cent and Woodside up 9.3 per cent. The worst performing stocks included Reece down 11.20 per cent followed by Domino’s Pizza down 10.55 per cent and Sonic Healthcare down 8.99 per cent.

What's next for the Australian share market? 

It is four weeks since I wrote my last report and it has certainly been an interesting time, as the All Ordinaries Index rose around 4 per cent over that time to a new all-time high of 7,956 points on 5 January 2022. That said, the gain was pretty much eroded the next day when the market fell heavily, which indicates it is not as bullish as we might like to think.

Looking at the market on a daily basis is not a good idea and why I advocate that you need to look longer term to understand the bigger picture. For example, the highest weekly close on the All Ordinaries Index is still the week of 13 August 2021 at 7,897 points. This level is over 2 per cent higher than where our market closed on Friday 14 January 2022.

Further, our market has failed to close above 7,826 points in the last 19 weeks, so investors need to be careful because while the market may appear to be bullish, it is not strong and it could fall away for a short period before it rises again. Therefore, I would encourage everyone to exercise caution when selecting stocks.

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.