Will the Stock Market Fall Below 6,600 Points?

What a week it was last week on world stock markets with many indices falling heavily. If you have been reading the news, it would appear that investors are driving the market down because they are worried about a global recession. But I would like to know who these investors are given that the majority of people I talk to are more worried about rising energy costs than a global recession, and they’re certainly not selling off their holdings.

What is causing the stock market to fall?

I often get asked what is driving a stock or market up or down, as if the answer to the question will somehow provide a crystal ball as to what to do next, when in fact the answer will mean very little to the vast majority of individual investors. The economics around what makes a market move up or down is very complex and they don’t move that fast. Given this, it’s important not to put labels on events, for example, by saying that investors are driving the market down, as this implies that mum and dad investors are somehow magically moving the market.

In reality, it is the big end of town like the hedge funds and other large institutions using the current high inflationary environment to move the market. The US Fed reserve has clearly stated that the high level of inflation is only temporary and is being driven by two main factors. The first is due to the pent up demand from COVID and, secondly, the rising energy costs due to the Russian invasion on Ukraine. The first will be resolved in the not too distant future, while the second is expected to slowly ease.

As I have stated previously, I continue to have issues with large institutions taking advantage of the market to the detriment of retail investors, particularly with superannuation funds lending out stocks so that short sellers can drive the market down like they are doing right now.

What were the best and worst performing sectors last week?

The best performing sectors included Communication Services down 2.35 per cent followed by Consumer Staples down 3.01 per cent and Utilities down 4.47 per cent. The worst performing sectors included Information Technology down 9.81 per cent followed by Energy down 8.20 per cent and Materials down 7.67 per cent.

The best performers in the S&P/ASX top 100 stocks included Newcrest Mining up 5.85 per cent followed by Evolution Mining up 5.43 per cent and Carslaes.com up 4.18 per cent. The worst performing stocks included Block down 26.14 per cent followed by James Hardie down 15.63 per cent and Qantas down 15.50 per cent.

What's next for the Australian stock market?

Last week the Australian stock market continued to fall ending the week down 6.74 per cent with the majority of this occurring after the market opened last Tuesday following the long weekend. The All Ordinaries Index fell to around 6,600 points, which is the level I previously indicated and as I have mentioned before, I am confident the market will find support soon.

The market has fallen over the last eight trading days and while it is still possible it could fall further, it’s unlikely it will fall by much before it starts to rise. If the All Ordinaries Index does fall further, the next strongest level of support is around 6,200 points. That said, as I continue to say, I am expecting the market to find support soon and to become more bullish as it moves into the third quarter of 2022.

Investors would be wise not to panic sell given that it is common for individuals to exit at or near a market bottom rather than preparing themselves for some great buying opportunities once the market settles. Therefore, I urge investors to exercise patience and caution, and not to bottom pick cheap or low cap shares but rather buy quality stocks in the top 50 when the time is right.

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 bestselling and award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.