All Ords Report 17/02/2015

With the oil price having fallen to six year lows over recent weeks, the Australian economy may just have received the life support it needs, and if you are a savvy investor you know what this means.

While you may be pleased, like most Australians, at paying a few dollars less when you buy your petrol, you may be placing far too much of your attention on the savings and missing out on the potential to make much more. What do I mean?

Firstly, when petrol prices fall, there is a flow-on effect, right through the economy. Not only are we paying less, but so are small business owners, one of the biggest drivers of the Australian economy. And, for some companies, petrol costs make up a large proportion of their expenses, particularly for couriers or tradesmen who travel from job to job.

Depending on the type of business, the savings could be significant, which takes some pressure off the owners, and therefore they are more likely to see business conditions as improving for them. You can relate this back to your own family, in that, when your costs are falling, you are more likely to feel positive about the future. If people are more positive about the future, they are more likely to spend, which helps the economy, and this improves the prospects for employment.

According to the Westpac Bank Consumer Sentiment Index, which is determined from a monthly survey of 1,200 households, consumer sentiment in Australia has increased by 2.4 per cent since December 2014, however, it is still below the level where the optimists outweigh the pessimists.

The benefits from falling fuel prices don’t stop with small business. If fuel costs are falling then the big corporates, including those listed on the Australian Securities Exchange, are saving too. Some of the companies most likely to benefit include those in transport, manufacturing and mining sectors, and goodness knows that mining companies could use some help. The savings may, for some, be better than any tax cut that the government could give.

So what does all this mean for you the investor? Falling fuel prices are a bit like an economic stimulus package, except that in this case, the government isn’t printing money as has occurred in the US and now Europe. This is about opportunities in the share market. We’ve all seen what happens to share prices when some form of economic stimulus is applied, they go up.

So, for investors, this means that you have an opportunity to profit from rising share prices. The only thing for you to do now is to look for stocks that are rising. And, if you still haven’t learnt how, you have to ask yourself, “what am I waiting for?” because with the market moving the way it is, slowly rising, now is a great time to learn.

So what do we expect in the market?

The past two weeks have been great for our market, and represented a change of direction for the All Ordinaries Index from sideways and down, to up. The market rose by around 5.0 per cent over the two weeks to the close on Friday at 5551 points. However, most of the buying action and the big gains occurred during the week prior to last, with the market having closed above the 5450 point level.

While the gains last week seemed to pale by comparison to that of the week prior, the move was definitely very welcome by all, having cleared the top of the prior mentioned resistance zone at around 5500 points. Short term traders appeared to have attempted to guess the bottom, so as to get in and out early, while investors taking a more medium term approach are now positioned to move more cash into the market once again.

For so long I have discussed with you the importance of the resistance level at around 5400 and 5500 points, and therefore you will appreciate that this recent rise is indeed very good news for those looking to profit from the market. Put simply, the market now appears to have sufficient momentum to continue to rise and bodes well for a good start to share portfolios in 2015.

Looking ahead, the XAO must continue to break important milestones as it rises, and may at some point over the coming weeks pull back to test what was previously resistance, which becomes support. Right now the market is fast approaching two of these milestones, being the prior year’s high in August 2014 at 5672 points and a zone between 5800 and 5950 points. More about these in my next report. In the meantime, if you don’t currently have a strategy for investing in the market, the first tip I can give you to get started is to read my book, “How to beat the managed funds by 20 per cent”.