Now that it appears we are in the midst of the long awaited stock market correction it seems an ideal time to check how the 52 week stock prices have been tracking for a number of ASX listed stocks as this may tell us if the rally of the last 7 months is running out of steam.
Over the last few months I have been suggesting that the ASX All Ords/ASX 200 would rally up to around 4800-5000 fairly easily but then find it tough going to rally much past this level. My rationale is simply that around 4800-5000 is a fair place for the Australian stock market to trade in a recession like economy and also unlike just about everyone else it seems, I do not believe that the Australian economy has yet felt the worst of the global financial crisis.
I am also on the record as saying the Reserve Bank of Australia would raise rates to early and I believe the recent rate rise was a mistake. If the Reserve Bank raise rates again this year then they should be looking for other jobs.
The RBA were caught out in 2008 by the global financial crisis and were raising rates at the wrong time, now they are out of sync once again with the global economy and have gone too early in raising rates.
Finally, although I am positive about stocks over the long term I have been cautious now for some months as I believe the market has rallied a little too quickly too fast. The U.S. and E.U. economies are still fragile, the Japanese economy is struggling to recover from the collapse in export volumes and over in China we can only hope that growth can be maintained there for the next year or so.
But enough of my ranting, let’s have a look at some hard data and see what some Australian listed stock prices have been doing over the last year.
52 Week Stock Prices Highs/Lows
(Last trade/closing prices as of 28th October 2009)[table “3” 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. Rio Tinto has just been added to the list so the last price is shown in black.
With the notable exception of Telstra all of the stocks above have seen their share prices rise since the last time I look at their 52 week high/low stock data. (in July)
The reason Telstra shares have struggled is due to issues surrounding the NBN (National Broadband Network) and Comrade Conroy’s plans to forcibly break the company up so he can establish his own government run monopoly to roll-out out a broadband network. (hopefully sometime this century)
However the data also shows that all the stocks are now below their 52 week highs and it looks like today that they will all fall further below these levels.
What this suggests to me is that the recent strong rally has run out of steam and that the correction I have suggested would come around sooner or later is now under-way. If the RBA raise rates again in November then stocks could easily slide well below 4500.
Looking back now we can see how brave investors could have made a tidy sum on moving into Macquarie Group (MQG) shares when they were under $20 and also how a defensive stock like Woolworths (WOW) has traded in a fairly narrow range amongst the chaos as is characteristic of this type of stock. Mind you plenty of other defensive stocks have been hit hard in recent times so heading for defensive plays has not necessarily been a good strategy over the least few years.
At this stage I honestly have no clear idea where stocks will be in a few months. By September 2010 I expect the All Ords/ASX 200 to be up around 5500 but my feeling now is that the rally since March will be halted for some time by profit taking and consolidation.
P.S. I am open to suggestions regarding what stocks should be added to the 52 week stock price list above. If you have any suggestions simply leave a comment regarding what stock(s) you wish included (and why) and I will see what I can do.