All Ords Report 19 January 2017

If you are wondering why your Healthcare stocks have lost a lot of value, it’s not because of an announcement by Donald Trump.

While the Healthcare sector did dip following Donald Trump’s announcement about pharmaceutical companies "getting away with murder", the sector had been falling long before this news came out.

The Healthcare sector made a high in July 2016, and fell by around 18 per cent into December 2016. It is important to remember that the sector is dominated by CSL Limited (CSL), and that some constituent stocks peaked after this time. That said, the recovery earlier this month in Healthcare has now been largely wiped out. It is possible for prices to come back to December lows. Worst case, we could see a new low for the sector this quarter.

Note, the decline is part of a natural cycle that occurs in the share market. Let me explain….

From the low in 2003 to the high in 2008 the Healthcare sector rose 256 per cent. The more recent rise from the low in August 2011 to the high in July 2016 saw the sector gain almost 230 per cent. Therefore, the Healthcare sector was due for a fall, so it is reasonable to think that news that may cause prices to fall will surface.

For both periods the rises were around the same time and range. How is that possible? Let me say it happens regularly like this in the share market because markets are cyclical and patterns repeat. So pay attention to the charts.

To find out more about the Healthcare sector and health stocks, listen to Talking Wealth podcast titled "TWP 673 The Australian Healthcare sector and the Trump factor - Part 1".

Before I became a technical analyst, someone showed me a similar occurrence of patterns repeating on a price chart. At the time I couldn’t believe it, however, the evidence was right in front of me, it was undeniable. I knew that I didn’t have all of the information I needed to make decisions about my investments, and that technical analysis would give me the edge.

Ever since, my goal has been to share this knowledge with as many people as possible. Gaining the knowledge I share with you in my courses can change your earning potential overnight. You owe it to yourself to find out more.

What do we expect in the market?

December 2016 and early January 2017 saw great gains on our share market and therefore it’s no surprise to see the Australian market take a breather and pull back to test support for a further rise. Strong support exists at around 5600 points and currently, the market is trading at around 5760 points.

Recapping on last year, the market finally pushed higher in December, through an important level at around 5670 points, which sets the scene for profits in 2017. While retail sales were not as strong as the market would have liked, in my opinion consumer sentiment is still providing good support for the economy.

Economic data out of the US has been positive in the lead up to the start of the US reporting season, which will be watched closely. Overall, I anticipated good results, however, reporting season will always bring surprises that increase volatility. It will be interesting to observe the US Federal Reserve over the coming months given Trump’s plans to boost the economy with fiscal stimulus.

Locally, you may have observed that the tone in market commentary has been changing over time. As the market moves into its next phase any negative talk will still impact our market but the recovery is likely to be faster.

Now’s the time to remain “on course” with your plans to invest or trade the market.

When economic conditions appear to be changing consider global markets carefully. The UK market recently broke to a new all-time high, another good sign.

Happy New Year!

Dale Gillham is Chief Analyst at Wealth Within