Over the last few months the Australian stock market has moved without any real conviction and appears to have settled within a range between 5100 and 5450. There has been no clear breakout towards 6000 nor has a major correction taken the market down to what I would describe as a buying range. At this stage it appears difficult to spot any clear trend by looking at the ASX All Ords Index and/or S&P/ASX 200 so I will go one level lower, and look at some key sector ASX Market Indices.
To start with, let’s review the candlestick chart for the ASX 200 Index.
S&P/ASX 200 Index (XJO) 3 Month Candlestick Chart
I am using candlestick charts simply because they make it easier to spot the days when the market has risen or fallen, plus they are provide a visual indication as to the magnitude or range of movement.
In the case of the ASX 200 chart above, we can see easily the fall-back from around the start of the year to near 5100 and it’s also easy to spot the fairly quick rebound to around 5450 in February. Now it seems the ASX 200 is on the way down again and if the mini-cycle shown above were to repeat, it should rally back to around 5450 again.
However my view is the ASX is over-bought and therefore I reckon it needs to settle down below 5200 for while. In the following charts I will outline some of the reasons for this view.
S&P/ASX 300 Metal & Mining Index (XMM) 3 Month Candlestick Chart
The Metals & Mining Index is worth watching because it covers much of the resources sector and for me this chart reflects weakness in this sector. Some “experts” may say there is a silver lining to be found as the resources boom ends, but I’d suggest that’s just wishful thinking.
Also the the prices for many hard commodities are expected to remain under downwards pressure this year, so we probably should get use to mining stocks edging sideways for a while and not being the force driving the ASX 200 higher.
Having said that I would be a buyer if individual mining related stocks fell too far. (I.e. BHP at around $30 or lower for example)
S&P/ASX 200 Financials Index (XFJ) 3 Month Candlestick Chart
The major banks & finance related stocks rallied quite strongly last year. but when I look at the chart of the ASX 200 Financials Index above I get the feeling the sector will struggle to remain at current levels and may be one of the sectors that drags the wider ASX 200 lower in the months ahead.
S&P/ASX 200 Industrials Index (XNJ) 3 Month Candlestick Chart
The ASX 200 Industrials Index over the last 3 months has done quite well which is surprising considering how much pressure manufacturers are under and also taking into account the difficulties companies such as Qantas find themselves in.
This Index does cover a fairly broad range of companies so it’s a little hard to read, but it does appear poised for a fall. In any case it is worth watching how this Index moves over the next few months.
Finally let’s have a quick look at how gold prices and the gold industry are faring.
S&P/ASX All Ordinaries Gold Index (XGD) 3 Month Candlestick Chart
The All Ordinaries Gold Index covers the gold industry so it’s a good way to track how both gold prices and gold miners/producers are faring. Clearly the trend over the last three months has been upwards so this must give some reassurance to the gold bulls. I’m not that keen on gold myself at the moment as a long term investment, but if the current trend is maintained then I may start contemplating taking some short term positions.
So in summary my stock market outlook at the moment remains unchanged from what it was some months ago. I believe the ASX 200 is trading above where it should be and that the market is poised (and overdue for a correction). Clearly if the market rallies and heads up towards 6000 then my analysis of the market was wrong, but at this stage I am inclined to keep sitting on the sidelines and bide my time.
This article was written by Greg Atkinson who is the Managing Director of Ohori Capital. Greg is from originally from Sydney but now works and resides in Japan. He can be followed on twitter via GregAtkinson_jp