All Ords Report 08 August 2017

How often have you delayed filling up your car until the next day, only to find the price of fuel soared overnight?

Perhaps you got wise and started buying fuel on a certain day of the week, only to find that this didn’t always provide the lowest price? Wouldn’t you prefer to consistently purchase when the price is low? Well, you can.

The Australia Competition and Consumer Commission (ACCC) have made it easy for you to pay less to fill up your car. On their website is a record of historical data for petrol price cycles for each state. Knowing the history allows you to make better judgements about the timing of your petrol purchases.

The reason for this is that petrol prices move in cycles; from a low price to a high and back to a low. On the ACCC website they demonstrate how long it takes for prices move from a low to a high and back to a low. In 2017 this occurred on average over 44 days in Brisbane, while in Sydney it was 36 days and 48 days in Melbourne.

Knowing what the average cycle is for your city means you’ll pay less and have more money in your account. This also applies to the share market, so I’ll come back to that shortly.

When it comes to filling up your car, it’s clear that having knowledge of the cycles and watching the ACCC price chart, and following their regular updates about the best times to buy, will save you money.

Just as petrol prices move in cycles, so do shares that are traded on the Australian Securities Exchange. Now, while you may save a few dollars at the bowser, just think what you stand to make by applying cycles to the movement of share prices.

For one thing, knowing how a cycle unfolds on a share allows you to invest when prices are low, so it’s safer, and if you invest after lows are confirmed the probability of making gains is higher.

The Australian share market has long term cycles of around 6 to 9, 18 and 40 years. Cycles of much shorter duration include approximately 6 months, 1, 2 and 4 years. While the rises out of cycle lows, particularly longer term lows, can create gains, the fall at the end of these cycles is usually devastating to returns. That’s why understanding how cycles unfold is important. We teach this in our Contracts for Difference Course. The last 40 year cycle low occurred in 2009.

Knowing where the market is in the current cycle means you can take advantage of the opportunities to make gains at the safest times and be out when the risk is high. That said the most powerful trading strategies come from a knowledge of price, pattern and time. This also requires a solid knowledge of the process to select the right stocks for your portfolio and the best strategies to trade them. This you will have after completing the Diploma of Share Trading and Investment.

What do we expect in the market?

The week before last was the second consecutive week that the Australian share market traded lower early in the week. It did rise for three consecutive days before momentum slowed on the Friday to close at 5755 points. So far this week the market has continued to trade sideways.

While it was encouraging to see the market strengthen yesterday and for the close to occur above 5800 points, I’ve been watching for an increase in buyer momentum to push it through 5860 points. To the present, buyer resolve appears to decline as the market rises towards that level.

The good news is that recent activity has lowered the level the market must break through and close strongly above to confirm the next bullish rise is underway, which is now 5846 points. However, as the market is still trading sideways, my view remains unchanged this week. On the flipside, a fall below 5700 points would indicate that the market will continue to fall through to late August.

Interestingly, the spike in volume of two weeks ago indicates that big fund managers may have made investment decisions at the eleventh hour, prior to the start of the Australian reporting season last week.

Reporting season kicked off in Australia with mixed results. When results are mixed the big fund managers may continue shuffling their portfolios, which can create a lift in the market. This is particularly so if the theme for reporting season is either ‘steady as she goes’, or ‘better than expectations’, as was the case earlier in the year. Right now, it’s too early to know how positive the theme will be.

The RBA elected to keep the cash rate on hold. It’s now been sitting at 1.5 per cent for the past twelve months.

Global news

Chinese GDP growth for the quarter to the end of June reportedly grew by 6.9 per cent. The Chinese are targeting growth for 2017 at around 6.5 per cent, which is lower than 2016, at 6.7 per cent. This means Chinese GDP is at a level it was more than 25 years ago. What’s interesting is that our economy hasn’t imploded, as many said would occur if the Chinese economy slowed to this level.

In the US, more than 60 per cent of companies have reported their earnings and of these almost 80 per cent were ahead of analyst expectations. Importantly, as analysts are looking at the forecasts, more than 70 per cent have reported better than expected earnings estimates for the period ahead, which supports higher share prices. So, are the companies overly optimistic, or are analyst expectations incorrect? Only time will tell.

Often an indicator of a strong economy is vehicle sales, which rose strongly in the US in July, beating forecasts.

Dale Gillham is Chief Analyst at Wealth Within