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Analysis of the Australian S&P/ASX 200 Index – March 2012

March 28th, 2012 · Greg Atkinson · 2 Comments

Almost daily the mainstream finance & business media churn out headlines regarding the stock market that would imply that stocks are either surging to new highs or falling to new lows.  The truth however is much more boring and so today I will try and have an emotion-free look at what the S&P/ASX 200 Index has been doing over the last few years & months.

Before I continue let me say that I appreciate that the ASX 200 is not a perfect guide in terms of tracking how the Austrlaian stock market is faring.  One weakness is that dud stocks are weeded out of the Index which flatters its performance and another is that it is heavily biased towards resources and financial stocks.

Bearing those points in mind, I would like to begin with what I will call the “ASX 200 Reality Check Chart” which is my way of saying – let’s not forget about the big picture!

S&P/ASX 200 Index (XJO) 5 Year Chart

asx_200_index_5_year_chart_mar_12

On the XJO chart above I have drawn a line at the level where the market peaked way back in 2007.  It’s sobering to think that it took just over a year to fall more than 3000 points and that now more than three years later we have only seen the market recover around a measly 1000 points.

It’s worth keep the above chart in mind as I work through the other charts.

S&P/ASX 200 Index (XJO) 3 Year Chart

asx_200_index_3_year_chart_mar_12

Next let’s have a look at the ASX 200 weekly chart over the last three years. Please note that as I move between time scales the points scale (LHS) changes. So the market may look like it has been more volatile over these shorter periods but this has not necessarily been the case.  (refer to the 5 year chart above)

I am not a technical chart analyst, so all I would like to say regarding the three year chart is that there is simply a pattern of the Australian stock market rising and falling over a period of months but overall the market has failed to establish a clear trend up or down.

Looking at this chart I would guess that the market might climb a touch more over the next few weeks and might even get near 4500 or so but will eventually give up those gains in the weeks that follow.

S&P/ASX 200 Index (XJO) 1 Year Candlestick Chart

asx_200_index_1_year_candlestick_chart_mar_12

Now let’s look at some technical or candlestick charts.  The chart above is the weekly candlestick chart for the ASX 200 over the last year. It shows the drop from April 2011 at which stage the ASX 200 was around 5000, to the low reached late in the year below 4000,  followed by a recovery of sorts after that.

This is a good chart to look at because it shows clearly that the market hasn’t been doing much since late last year. Stocks go up a bit, the media get excited and stocks come down a bit and the media get excited again.  As for me, I see not a lot to get excited about and watching the stock market recently has been about as interesting as listening to a Julia Gillard speech.

S&P/ASX 200 Index (XJO) 3 Month Candlestick Chart

asx_200_index_3_month_candlestick_chart_mar_12

Finally let’s have a look at what the ASX 200 has been doing over the last three months in detail.

From late last year the market staged a recovery but let’s keep this in perspective. The ASX 200 rose from just over 4000 points to around 4300 points. This sounds impressive if you think of it in terms of a rally of around 8% in a month, but less impressive if you remember it was simply getting back to a level 500 points below where it was in April 2011.

The chart above suggests to me that the Australian stock market is simply bouncing along without much direction.  If there is good news regarding the U.S. economy then stocks rise and then if investors focus again on Europe then stocks fall.  China moves the market both ways but seems to be pulling the Australian stock market back recently as the ‘miracle economy’ tag starts to wear off.

How the Australian economy is faring  is already in my view, factored into the stock market. Investors expect 2012 to be a tough year for the economy and it appears that a fall in commodities prices has been priced into the major mining stocks.

So where will the S&P/ASX go from here? The honest answer is I don’t know for certain (wish I did), but my feeling is we are likely to see the market remain direction-less for at least the next couple of months.

Greg Atkinson is the editor of Shareswatch Australia and the Managing Director of Ohori Capital. He is originally from Australia but currently resides in Japan. He can be followed on twitter via @GregAtkinson_jp


2 responses so far ↓

  • 1 Lachlan // Mar 29, 2012 at 5:02 pm

    The index has formed a nice base which looks promising. I have to prefer a break to 4600 over an immediate sell-off. I hope so at least. With the trade so compressed I doubt we will go anywhere too quickly however.
    Bought MSR at 13c the other week too. I have a lot of small positions in the small/mid miners so will leave it there until the action changes one way or another.
    This extend and pretend market might be waiting for US elections…. maybe not too. You have to wonder if the DOW may have a sharp drop and recovery soon being so strung out to the upside. Who knows.

  • 2 Greg Atkinson // Mar 30, 2012 at 7:49 am

    I think many investors are waiting for some clear signs from the Chinese economy regarding if the slowdown there is mild or something a lot more serious.

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