The Australian stock market has been as exciting to watch over the last month as a Julia Gillard speech. Over a few days stocks grind out modest gains and then when bad news roll in, the gains are basically given up and the market slides back down again. But if we scratch under the surface and look at some candlestick charts these may help us understand what is driving this type of share market trading.
A major reason the Australian stock market is stuck in a rut is because commodities prices remain under pressure which is something I talked about back in October 2011 in Market volatility, debt & the commodities slide.
It’s interesting to see how the mainstream media have now embraced both the commodities prices slide and the economic slowdown in China which are issues I have been writing about now for some years. Both these events were always going to happen and the fact that some experts & policy makers didn’t realise that illustrates how clueless some of these some people are.
Anyway before I drift further off the topic at hand, let’s have a look at the technical candlestick charts for the ASX All Ordinaries Index over the last month.
ASX All Ordinaries Index (XAO) – 1 month candlestick chart
Clearly over the last month the ASX All Ords has gone nowhere and has simply edged upwards over a few days when there is some apparently good news and then fallen back over a few days when reality sinks in again. Investors simply don’t know how far global growth will slow this year and if 2013 will be a year of recovery. It’s a classic case of a direction-less market.
Let’s next look at what a few resources related stocks have been doing.
BHP Billiton (ASX:BHP) – 1 month candlestick chart
Unlike the All Ords which has essentially moved sideways, the BHP Billiton (ASX:BHP) share price has drifted lower over the last month despite the best efforts of the commodities bulls to try and turn an economic slowdown in China into some sort of positive for mining stocks. No matter how people try and spin it, slower growth in China is nothing but bad news for the big mining companies and their share prices will remain under pressure for quite a while yet.
Even the gold miners are not immune from the weakness in the commodities markets as we can see from the chart of Newcrest Mining below.
Newcrest Mining (ASX:NCM) – 1 month candlestick chart
The stock price for Newcrest Mining (NCM) has followed a similar pattern to that of BHP Billiton and has also trended lower over the last month.
We can even see this same pattern in the unit prices of an Exchange Traded Fund (ETF) that includes a global range of resources related stocks as per the chart below.
Global Mining Investments (ASX:GMI) – 1 month candlestick chart
The ASX listed Exchange Traded Fund (ETF) Global Mining Investments (ASX:GMI) is a good chart to look at since this fund includes stocks with exposure globally to a range commodities such as iron ore, gold, silver & copper.
Again we see a similar pattern in this chart to those of BHP & NCM stock price charts which illustrates that there is still weakness across the commodities sector and I don’t see much on the horizon that is going to reverse that any-time soon.
So if the mining stocks are falling, what is keeping the All Ords level? In a word..the banking stocks.
Commonwealth Bank (ASX:CBA) – 1 month candlestick chart
The above stock price chart for the Commonwealth Bank (ASX:CBA) is almost a mirror image of the charts for BHP, NCM & GMI. Again we can see much the same pattern below for another one of the big four Australian banks – Westpac Banking Corporation (ASX:WBC).
Westpac Banking Corporation (ASX:WBC) – 1 month candlestick chart
The charts of the miners and banks above show the drift of some investor money away from the miners towards the banks as more investors come to the conclusion that the mining boom is over and that it’s time to look again at the fully franked yields that bank stocks offer.
Finally let’s have a look at a classic blue-chip defensive type stock – Woolworths Limited
Woolworths Limited (ASX:WOW) – 1 month candlestick chart
True to form, the stock price of Woolworths (ASX:WOW) has not done much but has managed to creep up around 1% for the month and I suspect this has to do with investors looking for defensive type stocks while the outlook for the Australian & global economy remains uncertain.
My feeling at this point is that we are getting close to the point of maximum pessimism and despite the gloom and generally bad global economic news, I believe the Australian share market is a touch oversold. Having said that, it isn’t looking oversold enough to tempt me into the market in any significant way just yet.
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