Shareswatch Australia

Australian stock market investing, ASX charts, analysis & market forecasts.

Shareswatch Australia header image 2


Has the stock market finally bottomed?

February 19th, 2009 · Greg Atkinson · 6 Comments

So far in 2009 the Australian stock market has basically moved sideways with little movement that would suggest that the 4000 level will soon be breached. However this might actually be a positive sign and could signal that finally a bottom in the stock market is forming.

Trying to predict where the stock market will peak or bottom is risky, and I already have egg on my face from suggesting the market had bottomed last year at around 4800. But life goes on, and as an investor I need to make some assumptions and forecasts from time to time so that portfolio decisions can be made. Therefore it is time once again to look at the charts and see if they may indicate if this bear market is coming to an end.

ASX All Ordinaries 2 Year Chart (February 09)

all-ords-2-year-chart-feb-09.gif

In 2008 we saw a stock market bottom in July/August (underlined on the chart above) and I was fairly convinced at that time that stocks would slowly recover and the end of the bear market was approaching. But then the Lehmann Brothers failure came along in September and since that time stock markets around the world have continued to fall. Not even the election of Barack Obama was able to turn the tide, although we did see the start of a few rallies in October and November but they quickly faded.

So here we are now in February 2009, another stock market bottom has formed (see chart) and therefore it is time to wonder once again if this is the “bottom” and if we might see a bull market again. Or is this new stock market bottom just a pause before stock markets around the world tumble downwards once more. Of course we cannot know with any certainty which way the market will go so let’s look at some arguments for and against a stock market recovery and see if we can get a “feel” for what might happen over the next few weeks.

The case for a stock market recovery.

  • It cannot get any worse. There is now so much bad news out there that most stock market investors have already sold out.
  • Most of the margin calls have now been dealt with. People who took margin loans to invest in stocks during the last few years have already been hit hard (wiped out) and most have probably sold their holdings.
  • Stock prices are now so low that savvy buyers will be actively snapping up bargains. This activity should support the market at these levels and help boost stock prices this year.
  • Eventually the bad news will start to subside and positive news will emerge. Over time therefore investors will start to creep back in into the market and the next bull market will start to take shape.
  • Low interest rates will entice people back into stocks with good yields. This will not only support the market at current levels but help drive the overall market upwards.

The case against a stock market recovery.

  • We ain’t seen nothing yet. There are more big firms that will fail and another wave of panic selling will send the market tumbling.
  • Stock markets around the world have only stopped falling because investors are hoping “Obama Magic” will save the day. Once this hope vanishes then stocks will continue on their merry way down to new lows.
  • The credit bubble has not been fully deflated yet. There is still more pain to be felt.
  • Forget about the charts and historical analysis, we are into a new era where stocks will under perform cash and bonds for years.

Frankly I see evidence to support both cases and at the moment I am simply doing nothing. Over the next few weeks we should have a better idea of where the stock market may be heading and if it is still moving sideways I will be tempted to pick up a few beaten down blue chip stocks. I am not however expecting any sustained rally in the short term, but rather just hoping (like many others) that things simply do not get much worse!


6 responses so far ↓

  • 1 pat // Feb 22, 2009 at 10:09 am

    where do you think bank stocks in australia are going have they hit the bottom as you seem to think that aust market has hit bottom.
    my biggest problem about the whole banking sector is that if aust unemployment goes to 10% it wont be the housing market that will be hit
    it will be personal loans and credit card debt that will not be paid .this will
    send the whole sector into the hands of the govt garantee.what a mess.
    aust looks like the titanic still partying even after the iceburg hit and saying this ship is unsinkable.

  • 2 Greg Atkinson // Feb 22, 2009 at 6:08 pm

    Hi Pat. Well the market has hit “a bottom” but I am not sure if this one will turn out to be the lowest point in this nasty bear market or if we are just seeing a pause before things go lower again. We just have to wait and see if the U.S housing market stops falling and if China can maintain solid growth numbers. I think a good couple of indicators to watch are oil prices and the Baltic Dry Index. Oil prices may be near a bottom and the Baltic Dry Index has recently crept off it’s bottom, but it is still too early to have any confidence.

    What you say about the banks is very true, however perhaps the gloomy outlook and bad news is already priced into bank stocks? CBA for example is down around 50% from it’s high in 2007 and so that takes into account quite a bit of gloom.

    I am not be brave enough to make any predictions about where bank stocks would go at this stage. All I can say if that for me personally they are back on my watchlist simply because of the fully franked yields on offer.

  • 3 S.R.T. // Mar 10, 2009 at 7:30 pm

    i think i am learning the hard way. I listened to advice to ‘hang in there’ with my retirement fund and now i am down almost 50%. I am scared but it really does seem too late to sell now. I am a self funded retiree and after the bad news of the last quarter of 2008 i applied for a part pension. I would appreciate any comments. Shirley.

  • 4 Greg Atkinson // Mar 12, 2009 at 10:57 am

    Hi S.R.T. I have posted some views today (12th March) that may help you. Please also see my investment tips. If you do not have a financial adviser then it is probably time to consider getting one and if you do, you might want a second opinion.

  • 5 S. R. T. // Mar 12, 2009 at 1:54 pm

    Thankyou Greg. Much appreciated.

  • 6 Greg Atkinson // Apr 24, 2009 at 9:32 pm

    Well we are still above 3500 so I am wondering now if indeed the stock market has bottomed out? Any thoughts anyone?

Leave a Comment

*


 


This site is not intended to act as any form of financial or investment advice.  © 2008–2015 Shareswatch Australia — DisclaimerCutline by Chris Pearson

The information contained in this website is for general information purposes only. Whilst we endeavour to keep the information up-to-date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.