For sometime I have been talking about the Australian stock market searching for a bottom of around 4000 for the ASX All Ordinaries & S&P/ASX 200. At of the close of markets yesterday, both indices were around that level, so could this mean the Australian stock market has reached a bottom?
In my view the answer is yes. I am not saying the market will not fall some more, but I doubt it will fall much more. I am not however expecting a strong rally off this level yet, but I do think it’s time for investors to look for some over-punished and under-valued ASX listed stocks.
Back in April I made the following comment regarding the state of the stock market:
“My view is that we have a market that is looking for a bottom rather than a top. I expect that bottom to be around 4000 or a touch below after which we could finally see a multi-year bull market take hold.”
I have also mentioned before that the Australian stock market was unlikely to rally while the mining stocks were falling and although the mining stocks are still under pressure, I sense the major ones like BHP Billiton & Rio Tinto have the slowdown in China pretty much priced into them already.
The BHP Billiton stock price chart over the last year (shown below) clearly indicates that a lot of heat has been taken out of its share price. This is largely due to the slowdown in China and because investors realise the mining boom is over for now.
BHP Billiton (ASX:BHP) 1 year stock price chart
BHP shares are trading now at around $32 and although they may slip back a little further my feeling is that the sell-off is nearing an end. I don’t BHP shares to stage a major rally but if they don’t keep falling that will help support the ASX All Ords/ASX 200.
On the 8th May I suggested that the market was about to trend downwards and the chat below shows my reading of the tea leaves was correct for a change. See: Are Australian stocks poised to trend lower?
ASX All Ordinaries Index 1 month candlestick chart
The market has fallen quicker however than I expected, but the candlestick chart above suggests to me that the major wave of selling might be coming to and end. At some point investors are not willing to sell their stocks at such low prices and start looking for stocks to buy. We are probably near that phase now.
If we look at a few charts of other stocks we can see a similar pattern. Firstly let’s look at a defensive type share – Wesfarmers Limited.
Wesfarmers Limited (ASX:WES) 1 year candlestick chart
Wesfarmers (WES) stocks haven’t moved that much (as you expect with a defensive stock) but the chart above shows a support level has been reached and that the shares have been holding around that level. In other words it’s another sign that investors are not in the mood for selling.
Newcrest Mining Limited (ASX:NCM) 1 year candlestick chart
Shares in Newcrest Mining (NCM) tend to move around a bit as the outlook for gold changes and on the back of the performance of its mining operations. I can’t see a bottom here although I guess the technical analysis traders may see one around $24. My only comment is that again I think the wave of selling may be close to being over.
Finally I will have a quick look at a financial stock since the All Ords & ASX 200 these days tend to follow the bankers & miners.
Macquarie Group (ASX:MQG) 1 year candlestick chart
The Macquarie Group (MQG) stock price has fallen during May but once again we can see signs of a bottom forming. Could the price of MQG shares fall further? Of course, but a lot of bad news has been swirling around recently and my guess at this stage is that all this is priced into the stock already.
I am not suggesting yet that a bull market is about to take hold, however it does look like the market is settling around a bottom and I don’t expect the Australian stock market to fall much further from this point over the next month or so.
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