Shareswatch Australia

Australian stocks seem to be enjoying a broad rally today and I suspect the mainstream financial media will churn out bullish sounding headlines when the market closes.  But if we step back and review a few charts it’s pretty clear that the Australian stock market is stuck in a rut and I don’t see it breaking free any time soon.

According to many experts, Australia is in the midst of a mining boom and the government often tells us that the Australian economy is performing better than most if not all, of the world’s major developed economies.  Certainly the commodities boom has delivered record profits for many companies,  generated massive tax revenues for the federal and state governments plus created many thousands of jobs.

So far this year the Australian stock market had managed to edge slowly upwards and the All Ordinaries Index appears poised to settle above 4400 during the next week or so. Although the risks of a major Eurozone economic implosion appear to be fading, the signs are that the economy in China continues to slow and it appears the U.S. economy is still struggling. The situation in China in particular is likely to have a major impact on where the Australian stock market heads next over the following few months.

Recently the markets appear to have settled somewhat and the Australian stock market has steadily been heading higher so far in 2012. Could we be seeing the early signs of another bull market taking hold or are we about to see another sharp correction take the ASX All Ordinaries back down towards 4000 and perhaps lower?

Recently the markets appear to have settled somewhat and the Australian stock market has steadily been heading higher so far in 2012. Could we be seeing the early signs of another bull market taking hold or are we about to see another sharp correction take the ASX All Ordinaries back down towards 4000 and perhaps lower?

The ASX All Ordinaries Index and S&P/ASX 200 Index finished much lower than I expected in 2011, so this makes me somewhat reluctant to go on record and make an Australian stock market forecast for 2012. However the process of looking at the various economic data and trying to guess where the market will end is a useful one, so foolishly I will outline once again my Australian stock market forecast for the year ahead.

The Australian stock market has finished trading for the year with the ASX All Ordinaries & S&P & ASX 200 both closing around 15% lower for 2011. It has been a disappointing year for share market investors (yet again) with even the mining stocks stumbling lower over the last 12 months. Many investors might be under the impression that the market slid back over the last few months of 2011, however the Australian stock market has been trending down since as far back as April.

If you were to believe some of the ramblings on mainstream media sites you might get the impression that Australian stocks have on occasions bounced back strongly and that in some way this is a reflection of how well the Australian economy is doing. However the reality is that the Australian stock market has been trending downwards since July and many stocks are simply limping from one week to the next.

Prices for hard commodities such as copper, iron ore & coal have risen strongly over the past decade and are now trading well above their long term historical averages.  This in turn drove the ASX All Ordinaries Index to a bull market high in 2007 and has helped put some support under the market ever since.  But is it realistic to expect high commodities prices will keep propping up the Australian stock market?

In the midst of all this market madness it might be useful for investors to sit back and look at what various sectors of the Australian stock market have being doing over the last ten years to see if we can spot any emerging trends.  We all know for example that the resources sector has been generally kind to investors over the last few years but will it continue to be a strong performer in the years ahead?

Often it is useful to step away from looking at the daily movements of the stock market and review what has happened over the last decade.  This won’t exactly tell investors which stocks will do well during the next 10 years, but it does show which trends have moved the market to where it is now.

This week was quite a ride for stock market investors with the ASX All Ords and ASX 200 both trading at one stage under 4000 points.  However as the week progressed the markets started to claw their way back up and things are not quite as worrying as they were a few days ago.  What investors will be trying to work out now is if the stock market rout is over, or is it just having a rest before it once again sends stocks falling?

The Australian stock market is still a long way below the last market high reached in 2007 and so I can’t help wondering when we might see the ASX All Ordinaries reach a new market high.  Perhaps it will just be a few years time before the market recovers lost ground, or maybe it’s going to be a long wait before share market investors see stocks once again post gains year after year.

At the start of this year I had a somewhat bearish view of how the Australian stock market would perform during 2011 but the slump over the last few months has caught me by surprise.  Even stocks in the mining sector are being dragged down by global economic concerns at the moment and I don’t expect things to improve much this year.

Despite the best efforts of many analysts to talk up a stock market rally the Australian share market continues to move sideways with the ASX All Ordinaries and S&P/ASX 200 both unable push clear of the 5000 level.  But should this worry investors or is the market now simply reverting back to the long term trend?  Also what factors might be at play that are preventing a major market rally?

Now that 2010 is behind us, let’s look at some stock market charts for last year and see if we can pick up any trends that might be of some use  as 2011 unfolds. Do the charts reflect a booming Australian economy and set the scene for a bull market in 2011? Or should we be a little more cautious?