It has been a while since I have looked at the 52 week prices for some widely held ASX stocks, but now that the stock market has taken a bit of a tumble over the last week or so it seems like a pretty good time to have a look at them again. Have stocks hit new lows or have we simply seen some heat taken out of the market?
Last time I reviewed the 52 week stock prices was back in October 2009 and at that time I made the following comment:
“……if the RBA raise rates again in November then stocks could easily slide well below 4500.”
As we know now the RBA did raise rates in November and the ASX All Ords dipped below 4500 earlier this week. So I do actually get some calls right from time to time.
I am no market genius, but it was pretty obvious if people looked at the trade data and global economic situation in late 2009 that the Australian stock market had rallied too far.
But a stock market correction is nothing to get worked up about unless you are seeking to write a catchy headline for a newspaper. So rather than get caught up in the correction hype let’s calmly have a look and see what some stocks have been doing since October.[table “” not found /]
A closing price in green means the stock is trading higher than last time a check of 52 week stock prices was undertaken. A closing price in red means the stock price has fallen over the same period.
The data above highlights fairly well I think how the market has come back down to a level we saw around October last year, which in my view is a good thing. It is better to have some profits taken out of stocks at regular intervals than for the stock market to become over-bought and come crashing down on some rumour.
We can also see how the banks and financials have been hit a little harder than other sectors, mainly because they probably rallied a little too far and also because there are a lot of issues still swirling around that impact them such a regulation, interest rate & some lingering concerns regarding the health of the global financial system.
The data also shows how defensive stocks like Woolworths, Dominos and Telstra tend to hold up better during corrections and the fact that they are doing this, makes me feel a little better about the overall health of the stock market.
Back in the dark days of 2008/early 2009 even defensive stocks were getting hit hard and that is a good indication that panic has gripped the market. We may have seen a correction over the last week or so and even a little panic, but it has not been anything like some of the wild sell-offs we had during the worst of the global financial crisis.
When I look at the 52 week stock price data above I have to say I am relieved. Yes some stocks like Australand (ALZ) are still way below their 2007 levels, but generally speaking all stocks in the table are well clear of their 52 weeks lows and this is a good sign.
The mining companies, (BHP and RIO) despite the recent pull-back in their share prices, are still higher than they were in October due to the solid demand for commodities. But as I have said on previous occasions, I can’t see this demand being sustained.
We need to remember that an enormous amount of money has been pumped into the global economy and this has supported the demand for commodities such as as new road, bridges and dare I say it, school halls are constructed across the world.
But very soon, just about every nation except perhaps China, is going to have to wind back the government stimulus spending or risk having a serious debt problem. When that starts to happen I would expect the revenue rolling into companies like BHP & RIO will be cut significantly.
So my outlook for the next 3 months is that the market will get back up to the 4800-5200 level and will not rally much past that point until the outlook for 2011 improves.
This means I certainly don’t expect we will see the stock market go anywhere near the lows of March 2009 in 2010, but I am also pretty sure there is another correction or two waiting for us this year. Investors are still a very nervous lot!