All Ords Report 02 June 2017

Australians are known for their competitive spirit, particularly in sport, and so it seems is the case in financial circles.

If the US market is moving up, Australians wonder why our market isn't doing the same?

If the US consumers are spending more, why aren’t we?

If the US economy shows stronger signs of recovery, why isn’t ours?

Given the recovery underway in the US, where interest rates are now rising, should we be asking.…

Perhaps we ought to rein in the competitive spirit for a moment and think carefully about what we wish for.

Now let’s go back to the before-mentioned point about consumer spending and how it has been rising. What’s really interesting is how those in the financial industry in Australia, seeing the US data improving, immediately look to the same industry or sector here. Why? Because of the potential to profit of course.

However, a corresponding move up in value in any sector or group of companies in Australia may only be short-lived, unless the numbers support it. But which numbers are you reading?

If you are constantly reading information containing data that is short term in nature, how can you possibly understand the bigger picture to make better informed decisions? Remember, if you fail to understand the bigger picture the consequences are painful as you may watch your capital decline.

The answer? Logic suggests that we must consider historical trends, and put short term data into context. So how can you do that?

Based on my many years of experience in seeking the answers, it isn’t going to be just handed to you on a platter. Many people waste hours upon hours scouring through free information and still don’t have what they need.

First you must see the bigger picture financial and other benefits to you in finding it, then seek the solution. Learn what you need to know and the rewards will flow to you.

Back to retail spending…

Retail spending in Australia more recently, and particularly through the festive season, has reportedly been a disappointment, and therefore it will be interesting to see how the numbers appear after the financial year end. However, just to find a positive spin for us Aussies, someone looked back to what Australians spent during the Spring Racing Carnival, and guess what? A record level of spending!

So this must mean we’re doing well.

What do we expect in the market?

Last week, the All Ordinaries Index (XAO) rose strongly to a high of 5937 points, after having pulled back to test support at around 5730 points the week prior. Finally, the market has made another convincing move up.

The next challenge for our market is to break 6000 points and this is looking ever more likely, and firms up our previous target for the market between 6200 and 6400 points.

I had been expecting the market to pull back for a couple of weeks prior to the continuation of the uptrend. With the market now likely to make the next short term low later, the degree of the next decline is likely to be sharper but shorter, which is good for investors. That said, the higher and faster the market rises, there is a slight risk of increased volatility in the second half of the year.

In my opinion, this is a much better time to be in the market than in 2015, and the chart of the XAO indicates a further rise is probable. Of course, that does not preclude a few bumps along the way.

It was interesting to see the US market continue to rise. More interesting though was hearing how market commentators failed to reach agreement on why the US market rose from Monday through Thursday. Reportedly, it was US consumer confidence that was the recent driver, and positive GDP results. However, the US market had already come off its high of four weeks ago, so it’s normal for the selling to ease and for prices to rise slightly.

When commentators are not decisive, funnily enough, this usually provides a technical analyst with additional confirmation as to the phase the market is likely to be trading in. Given the analysis and the commentary, the Australian market is on track. For the present, we stick to what is probable based on the historical data, not the commentary about what is a cause, or what may occur in future.

The US Federal Reserve doesn’t appear to be providing clarify on the outlook for the next rate rise, which will have the naysayers believing the worst, and the overly optimistic the best.

Dale Gillham is Chief Analyst at Wealth Within