In 2012 the Australian stock market finished the year higher with the ASX All Ordinaries Index posting a gain of around 12% to close at 4663.30 points. Unsurprisingly much of the financial media excitedly churned out headlines suggesting stocks were soaring and many commentators focused on the annual rally being the best since 2009. However if we look past the nonsensical rambling of much of the mainstream media the reality is that All Ords has in reality simply moved back up to a level below where it finished at the end of 2009 and is still way below the pre-GFC market high.
At the start of this year I suggested the All Ords would finish at around 5000 which at the time was a pretty ambitious call but I reckoned that as interest rates were cut that eventually money would move back into stocks.
On the plus side the market did rally so I feel somewhat justified in taking a bullish outlook at the start of the year. However the market never reached the level I thought it would so once again I will have to wear the dunce cap for a while.
Anyway that’s all water under the bride as they say so let’s review some ASX All Ords chart for 2012.
Australian ASX All Ordinaries Index XAO 2012 chart
Firstly here is the 2012 chart for the All Ordinaries Index on which I have marked the rally from mid year which lifted the All Ords from near 4000 up to near 4700. The stock market rally during the second half of the year was impressive but considering that in May the All Ords was already at 4500 finishing the year at 4663.30 really wasn’t that much of an achievement.
In other words the rally in the second half of the year simply clawed back gains after the correction in May plus added around 160 points. On an annual basis a 12% gain is very respectable but if we take into account where the market was in April/May 2012 I would suggest that overall the performance of the Australian stock market was a little disappointing.
For much of 2012 the U.S. stock market outperformed the Australian market but this changed near the end of the year with the U.S. presidential election and subsequent budget negotiations dragged the S&P 500 lower. U.S stocks did rally on the last trading day of the year which is not shown on the chart below so taking that into account, the All Ords & S&P 500 posted pretty similar gains for the year.
Australian All Ords Index vs U.S. S&P 500 Index 2012 chart
In around mid December I suggested that the rally across Australian stocks would falter before the end of the year however this was not the case but I am still convinced a significant correction is on its way and the chart below will help explain why I remain cautious.
ASX All Ordinaries Index vs Amex Oil & Gas Index 2012 chart
A major reason for my concern is that in addition to the slump in the Baltic Dry Index there is an underlying weakness in oil & gas prices as shown in the chart above. Simply put, if the global economy was on the rebound I would expect to see the AMEX Oil & Gas Index be trending upwards.
I might need to wear the dunce cap once more, but I will go on record again as saying that a major correction is brewing. (by major I mean more than 5% in a month)
I expected a correction in December (as usual my timing is poor) which obviously didn’t happen and the 1 month candle stick chart for the All Ords for December shows how the market continued to push higher during the month so I guess there was a Santa Rally after all.
ASX All Ords Index candlestick chart – December 2012
Finally the big picture view – a look at the ASX All Ords Index over 5 years which should help illustrate why I am not getting excited about the performance of the Australian stock market this year.
ASX All Ordinaries Index (All Ords) 5 year chart
The line I have drawn on the chart represents the level to which the All Ords rallied after hitting the GFC low in early 2009. At the end of 2012 the Australian stock market finished below that 2009 level so why many market commentators and the much of the finance media are rambling on about a “soaring” share market is beyond me.
In addition it is worth noting that ASX All Ords finished 2012 at a lower level than it did at the end of 2009 & 2010 plus it also failed to make up for the falls seen during 2011.
So in summary my view is that although a 12% annual rise for the Australian ASX All Ordinaries Index is good news for investors, it is not a sign that the stock market is soaring or is at the start of a long term bull market. I still remain cautious about the outlook for stocks.
This article was written by Greg Atkinson who 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