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ASX All Ordinaries Index: Charts, Analysis & Trading Ranges

December 16th, 2013 · Greg Atkinson · 5 Comments

At this time of year we are bombarded with the less than useful reflections of market analysts, brokers and finance columnists who use the benefit of hindsight to tell us mere mortals how they spotted the trends for the year and how easy it was to have profited from the stock market. I however will spare my readers this ordeal and calmly analyse charts of the ASX All Ordinaries Index going back 10 years. I will also look back on the long term outlook for the Australian stock market that I outlined in 2009 and review how events have unfolded since then.

I will start with the shorter term analysis and focus on the 1 year chart for the All Ords Index since at this time of year the usual “Santa Rally” babble does the circuit.

ASX All Ordinaries Index – 1 Year Candlestick Chart

xao_1_year_candlestick_chart_dec_2013

This year has been (so far at least) a positive one for the stock market, but by the end of 2013 the situation may be quite different and I personally don’t expect much more than for the All Ords (XAO) to hang onto the 4800-5000 level.

Back in June this year I wrote that if the market moved sideways then it would be a good outcome. See: For the Australian stock market, moving sideways may be a good outcome I know that sort of outlook or forecast pleases neither the market bulls nor market bears, but the reality is that at the moment this is essentially what the All Ords has done notwithstanding a few ups and downs along the way.

On the technical or candlestick chart above I have indicated in green the approximate range of the significant market rallies and in red the approximate range of the significant market corrections. The thing to note is that earlier in the year the market gave up almost all of what it gained during the first of the year and so if that was to be repeated then we could see the All Ords fall to near 4900 and if it got particularly nasty, then we may even see it fall to  around 4700.

I am not particularly good at calling short term trends but if I had to make a call, it would be that the market will not rally much from the current level and that it will finish the year around 5000 or below.

Since I’m more comfortable with taking a longer term view I will move onto the two year chart of the All Ords which I believe is fairly interesting.

ASX All Ordinaries Index – 2 Year Candlestick Chart

xao_2_year_candlestick_chart_dec_2013

On this chart the blue bars  indicate a week during which the ASX All Ords rose and the red bars indicate the weeks when it finished lower. Over the top I have drawn some lines simply to indicate the longer term movements up (green) and down (red). (In same cases the market falls did not need to be highlighted)

Generally speaking the Australian stock market over the last two years worked its way up in periods of a few months followed by shorter term term corrections. As I have written on many occasions (and despite the media hype) – corrections are a normal part of the market cycle and should be expected so the fact the market has fallen back at times is no surprise.

Needless to say selling into a correction is generally not ideal and for me personally, it is time to do nothing and wait until a possible buying level is reached.

Another interesting point is that since February-March 2013 the market really has not done that much. All that has happened is that the All Ordinaries has moved from an over-sold range to a level which I identified  back in 2009 as being a rallying point. Reference: A technical look at the S&P/ASX 200 Index (August 09)

The chart above also shows how the All Ords moved beyond 5000, headed into the over-bought zone up near 5400 and then subsequently has come down again.

If we now look at the 10 year chart we can see how prominent the 5000 point level is and why I think it is important to focus on for now.

ASX All Ordinaries Index – 10 year Chart

xao_10_year_chart_dec_2013

The Australian stock market first hit 5000 points way back in 2006 therefore I find it hard to get too excited when the market is near that level again or passes it for a while.

So what has happened since the GFC hit the stock market? In simple terms the market fell too far, it then rallied back to 5000 and has bounced around that level ever since. I know that’s boring, but that is how it has been.

My approach has been to use boring reality, the global economic outlook and market fundamentals to come up with some trading ranges and zones to assist me with a long term investment strategy for the Australian stock market. I have marked those ranges and zones on the chart below.

ASX All Ordinaries Index (XAO) – Strategy Chart

xao_3_year_strategy_chart_dec_2013

I call this chart a strategy or long term trading zone chart because it is not meant to be a technical trading chart nor indicate precise entry/exit points. It simply highlights some levels or zones at which I consider making some portfolio changes or adjustments. I have been watching the ranges on this chart since 2009 and have also outlined some trades based on them over the last 5 years from time to time.

The top zone above 5200 (blue line) is what I consider for now, the over-bought range for the All Ords.  The range between 5200-4800 (purples lines) is where I expect  the market to move within and hence below 4800 is entering the over-sold zone.

When market falls below 4,600 I have been (and will be) looking to pick up battered or under-valued blue chips stocks.

But as I mentioned earlier, these levels are not precise and are just indicators.  I also certainly do not want to suggest that anyone trades or invests based on these levels alone.

Basically what I have been doing and will continue to do, is take some profits if possible when the market looks over-bought and consider buying good quality stocks when the market looks over-sold. Generally speaking I have been limiting myself to the S&P/ASX 200 range of stocks and have been staying clear of lower cap/risker plays.

As we move into 2014 I don’t see any need to adjust my strategy for now. I think it’s unlikely for a sustained stock market rally to push the All Ords well clear of 5000 (and stay there) and do I think the market will settle down near 4400.

So for now it’s a case of steady as she goes, no sudden movements and prepare to enjoy the festive season because at the end of the day, there are far more important things than investing in stocks!

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


5 responses so far ↓

  • 1 Greg Atkinson // Dec 26, 2013 at 9:49 am

    The ASX All Ords is now clear of 5200 so if my trading ranges are correct then it should undergo a correction back down to below this level within weeks. If I am wrong then it will push on higher and not fall back to between 4800-5200 again.

  • 2 Dulong Ttil // Jan 10, 2014 at 3:50 pm

    Japan has been applying an assertive Monetary Easing Policy, which drives the YEN downwards successfully. The immediate result shows that their Export and Tourism industries have picked up swiftly. Japan is now enjoying healthy export growth and has much more tourists visiting Japan.

    With the sound and robust stimulation by Japan’s Monetary Easing Policy (which in fact mainly injecting more printed notes into the market by their Central Bank), the Nikkei has soared from 10,398 to 16,291 just in 2013. Nikkei marks its best performance in forty years, and also the top performer among Asian markets in 2013. Analysts name this “Nikkei Ends Year on a High in Quiet Asia”. Can we see the power of an aggressive Monetary Easing Policy now?
    Australia can consider this as a viable option to improve our economy outlook and, our export can be improved instantaneously.

    A lower $A can help to improve our Export opportunities, save the Australian farmers and manufacturers and reduce our trade deficit. It can also help to improve our Tourism industry, which has been damaged due to high $A. If our economy can be improved successfully, our share market will soar again just like Japan.

    Another though is to engage a linked currency with USD, (e.g. A$1:US$0.80), which can give overseas investors good confidence in our economy stability.

  • 3 Greg Atkinson // Jan 14, 2014 at 2:11 pm

    Dulong a weaker AUD would certainly help exporters but on the other hand it would drive up the cost of imports and may actually make the balance of trade situation worse especially if iorn ore/coal prices and volumes fell sharply.

    Meanwhile today we are seeing the All Ords fall back down towards the 4800-5200 trading range and my guess is that it will resume it’s multi-year drift up and down around that range.

  • 4 Lachlan Scanlan // Jan 15, 2014 at 6:01 am

    Devaluations may be inevitable but they are not a panacea. More so a sign of continuing imbalances in the system.

  • 5 Greg Atkinson // Jan 16, 2014 at 12:17 pm

    Yes I agree Lachlan. As it is we have a lot of money & debt swirling around which makes me wonder if anything was learnt from the GFC. I am inclined to believe asset bubbles are forming (or have already formed) at the moment & that the system needs get back into a more sustainable/long term growth mode.

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