Shareswatch Australia

For sometime I have been talking about the Australian stock market searching for a bottom of around 4000 for the ASX All Ordinaries & S&P/ASX 200. At of the close of markets yesterday, both indices were around that level, so could this mean the Australian stock market has reached a bottom?

Unfortunately I was sick the past few weeks and I am just now getting back into the swing of things. Similar to the demand pull that the warmer than usual spring has had on macroeconomic data, the warmer spring caused me to have an earlier than usual sinus infection as well as some horrific allergies. I suppose I am pushing it a bit far when I am comparing my health concerns to economic data, but alas I fly my nerd flag proudly.

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.

Over the past five months gold has fallen sharply and is no longer headline news which it once dominated back in 2011 when it was making new highs every day. The shiny metal has been under pressure because traders and investors started to pull some money off the table to lock in gains.

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 past few months have been tough for those holding precious metals stocks, PM futures contracts or physical bullion. With silver is trading down 41%, precious metals stocks down 30% and gold 15%. It has people scratching their head. The question everyone keeps asking is when can I buy gold and silver?

Thus far in 2011 the overall stock market movement has been much different from what we had in 2010. This year we have seen nothing but sideways to lower prices with wild price swings on a day to day basis. There just has not been any really solid trends to take advantage of this year. Instead we had to actively trade the oversold dips and sell into the overbought rallies to just pull money out of the market on a monthly basis. Last year we saw 3 major rallies that lasted several months making it easy for anyone who bought into the trend to make money if managed properly.

Over the last six months stock markets globally have become more volatile as Europe and the U.S. struggle to revive their economies.  To make things more complicated many advanced economies have racked up so much debt during the ‘good times’ that they now don’t have the capacity to spend their way out of trouble.  There will be no quick fixes and the situation is worrying enough to even rattle the commodities bulls.

As another year starts it’s time for me to make another stock market forecast, one which I will probably regret making in just a few months time. Generally speaking, I expect that 2011 is not going to be particularly kind to the Australian economy and therefore my Australian stock market forecast is not going to make market bulls very happy.

Over the last week the Australian stock market has taken a turn downwards pretty much inline with markets across Asia, Europe and the U.S.  Once again no mater how much the RBA talks up our economy, the fact is that Australia’s economic health depends on how our major trading partners are doing and investors are starting to get worried about the global economic outlook.

The current downturn in the world markets presents us with an opportunity to review or develop our investment strategy for the next few years. For some people it may mean a major overhaul such as moving from stocks to real estate, while for others it may mean just a realignment of stocks in a portfolio.