It might surprise some readers to know that over the last 6 months the Australian stock market has essentially moved sideways again. It’s true that over the last quarter the market has posted a healthy gain and this sort of action gets analysts & reporters very excited. But the boring longer term reality is that the All Ords was hovering around 5,200 in May and that is where it is now.
Looking at the chart below of the All Ords we can see yet again how 4800-5200 range in play. When the market dips below 4800 it doesn’t stay there long and as I have said before it is an indication the market is moving into the over-sold zone. When the market moves over 52oo it becomes more difficult to find stocks worth buying.
ASX All Ordinaries Index 6 Month Chart
The only real development I have seen over the last few years (at at All Ords/ASX 200 level) is that the highs have been creeping higher and that the All Ords & ASX 200 have not looked like falling below 4000 again. Not exactly exciting stuff for longer term investors but for now it appears that at least there is less fear out there.
My view is that the market is still drifting. The Australian stock market appears to rise on the back of any good news now matter how ambiguous it is and will also pull-back for reasons which often also appear ambiguous.
If we look at a defensive stock like Woolworths (ASX:WOW) we can see this drifting movement in action.
Woolworths (ASX:WOW) 6 Month Stock Price Chart
The share price of Woolworths has moved more or less in sync with the All Ords. It’s hard to see much evidence that investors are buying into this stock for example because of fundamental reasons related to the Woolworths business. Rather it appears to me a case of a rising tide lifting all boats.
Again the movement is much the same for Lend Lease. (ASX:LLC)
Lend Lease Group (ASX: LLC) 6 Month Stock Price Chart
If investors got the timing right then a stock like Lend Lease (and many others) would have provided some decent gains this financial year. On the other hand if investors had picked up LLC stock back in May then they could be seeing red ink.
As always, it’s easy to spot the right entry point in hindsight, but for most of us mere mortals being able to accurately spot when stocks have bottomed-out rarely happens.
It could turn out that even picking up LLC shares just below $8.50 will prove to have been a bad entry point over the long term…we just don’t know.
My point is that I personally don’t see much reason to buy into a market that is drifting along unless something of real value pops up. In this sort of market that would most likely be a stock that also pays a decent dividend so that at least there is some income rolling in whilst the market drifts.
Now a quick update regarding a shorter term trading strategy I outlined in May in: Commonwealth Bank and Rio Tinto – a shorter term trading strategy
Back then outlined my own strategy of selling CBA when the price was high and buying into RIO on the dips. Since then that is what I have been doing, but mainly selling small lots of CBA since the RIO price has not dipped enough to tempt me again.
Anyway I will let the charts do the talking.
Commonwealth Bank (ASX:CBA) 6 Month Stock Price Chart
Rio Tinto (ASX:RIO) 6 Month Stock Price Chart
The share price for CBA has moved in similar manner to WOW, LLC and the All Ords whereas the RIO share price is being moved I would suggest, more by factors such as the state of the Chinese economy rather than drifting along with the wider market. (although since July is has also joined the drift upwards)
At this stage I will continue with my CBA/RIO strategy mainly because I think the major banks are fully priced whereas I believe a stock like RIO when it is around $55 (or lower) is worth looking at.
But as always – please remember this is not financial advice and remember that some of my past trading ideas have come badly unstuck!
He can be followed on twitter via Follow @GregAtkinson_jp – See more at: http://www.shareswatch.com.au/blog/stockmarket/commonwealth-bank-and-rio-tinto-a-shorter-term-trading-strategy/#sthash.YT9XEVxD.dpuf