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S&P/ASX 200 Index (XJO) Charts Review – August 2014

August 25th, 2014 · Greg Atkinson · 23 Comments

Over the last 6 months despite signs the Australian economy is heading for tougher times, the Australian stock market has continued to edge higher despite the occasional minor correction along the way. Currently the S&P/ASX 200 is just above 5600 and if it’s going to make a run towards 6000 before the end of the year, then now seems the time for this to happen.  But maybe stocks are poised to slip back again and around 5600 is as good as it will get for the S&P/ASX 200 for 2014?

Despite much bullish market talk the reality is that over the last 6 months the Australian stock market has been essentially been moving sideways apart from two fairly recent significant moves upwards – one in July and then another in August. Both of these can be clearly seen on the candlestick chart of the ASX 200 Index (XJO) below.

S&P/ASX 200 Index (XJO) 6 Month Candlestick Chart


It is also worth noting that back in March the ASX 200 dipped below 5300 and so a correction back down near that level over the next month or so is not out of the question. Perhaps the run up in the market in August is sustainable, or maybe it’s a sign that the ASX 200 range of stocks are in the overbought zone?

Personally I am inclined to believe that the market is now overbought simply because I don’t see much macro-economic data that suggests that bank and mining stocks can rise much from here. After all, if the major banking and mining stocks fall back then so will the ASX 200 Index and this movement will in turn drag most other ASX 200 stocks down as well.

But on the other hand there is no denying that since mid-2012 the overall trend (see chart below) for the ASX 200 has been positive, although as I noted back in 2012 the market was oversold so a rally back to the 4800 – 5200 was very likely anyway. Nonetheless, the ASX 200 has pushed through 5200 and  remained above this level for quite some time so those who see the market reaching 6000 this year do have the trend on their side…for now.

S&P/ASX 200 Index (XJO) 3 Year Chart


Now if we step back and take in the big picture view and look at the S&P/ASX 200 Index 10 year chart we can make a few general observations.

S&P/ASX 200 Index (XJO) 10 Year Chart


Firstly the ASX 200 is currently at the same level as it was in late 2006. Secondly the Australian stock market was been given a boost upwards from mid-late 2012 via combination of lower interest rates, record commodities exports (albeit at lower prices recently) and a change of government plus of course a external factors such as QE in the US.

Yes there have been other factors at play, but when it comes to the Australian stock market the major banks and major miners set the tone – so in short what moves their stock prices around will also move the ASX 200 Index.

If the RBA were to cut interest rates again then maybe stocks would get a boost, but apart from that I can’t see too much on the horizon that would give banks stocks a lift and almost nothing that will push the miners significantly higher. (apart from short term price boosts via buybacks, de-mergers and increased dividends etc)

Therefore despite the clear current trend that suggests the market may be heading to 6000 this year I remain bearish and may in fact be one of the few market bears around. So if I have to wear the dunce cap at the end of the year then so be it!

Finally I just want to sneak in a chart of the ASX 200 versus ETF Gold which I think is interesting simply because it shows how gold has lost it’s lustre (for now).

S&P/ASX 200 Index (XJO) vs ETF GOLD 5 Year Chart


It’s worth remembering that many “experts” a few years ago were sure gold was headed for $2000 USD an ounce (and beyond) whereas today it is just below $1300 USD an ounce and gold miners like Newcrest Mining are doing it tough.

That serves to remind us that sometimes when a trend looks hot it’s already too late to jump in and despite being tempted by possible gains, it’s often best to stay on the sidelines and be patient.

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

23 responses so far ↓

  • 1 lachlan // Aug 28, 2014 at 8:42 pm

    Greg business owners on the street here in Qld are telling me that things are harder now than at any point since the GFC started. My own asx200 bet was for 6000 sometime during the year before finishing back somewhere in the mid 5000’s (forgotten where i made my bet) but imo if we get to 6000 it certainly wont be anything to do with the economy on the street…more to do with financial hocus pocus and whatever other shenanigans which I don’t believe Joe average can ever fully see or understand…only speculate about in finance forums lol. I guess we all understand there will be a reckoning from the monetary chaos one day. It’s just become obvious to me long ago that nobody can really tell when it will happen or exactly what it will look like. Naturally I hope oz keeps its lucky status because I live and do business here. When the time of testing comes it seems we have some obvious fundamental realities here which I hope will reduce the impact on the battlers.

  • 2 Greg Atkinson // Aug 29, 2014 at 9:30 am

    Lachlan it certainly appears that the Australian stock market and the economy are on different planets at the moment with the only notable exception being the housing market.

    Curious too is that geo-political risks that in years gone by would have sent the markets lower are now brushed aside as if they don’t matter.

    Strange days.

  • 3 lachlan // Aug 29, 2014 at 10:41 pm

    Maybe of late people have experienced over-exposure to geopolitical drama and are not responding in a financial sense so much. Maybe they are somewhat numb.

  • 4 lachlan // Aug 29, 2014 at 10:43 pm

    gee i’m glad it just became obvious to me long ago lol

  • 5 Biker // Aug 29, 2014 at 11:15 pm

    Biker // Feb 11, 2014 at 9:25 am

    Mr Abbott will save us, Lachlan. 😉

  • 6 lachlan // Aug 31, 2014 at 1:54 pm

    he’s taking classes in Mandarin and Judo, BP? 😉

  • 7 Greg Atkinson // Sep 1, 2014 at 2:01 pm

    Well the ASX 200 seems to be hanging on to 5600 despite signs manufacturing growth in China is slowing and some indications the property market in China is cooling as well.

  • 8 Biker // Sep 1, 2014 at 6:35 pm

    Lachlan: “…he’s taking classes in Mandarin and Judo, BP?”

    Well, Putin certainly is, Lachlan!~ 😀

  • 9 lachlan // Sep 5, 2014 at 2:49 pm

    On for young and old at the moment eh BP.
    Greg the DXY has certainly had a brisk run to the upside of late…woulda knocked out a few gamblers no doubt because it looked ready for a drop but then that’s been the technical nature of that beast for a while.

  • 10 Greg Atkinson // Sep 12, 2014 at 3:08 pm

    Well the ASX 200/All Ords is hanging onto 5500 for now although the markets seem to be drifting expect when they get a boost every time “stimulus” is mentioned!

  • 11 lachlan // Sep 23, 2014 at 6:47 am

    Some bearish action last week or so Greg with a break down of the rising wedge (xjo) and the dollar index looking very strong. Will continue to watch and hope for a reversal of fortune.

  • 12 Greg Atkinson // Sep 25, 2014 at 8:30 am

    Well we are back down around 5400 so it will be interesting to see how the markets end the week. As per my latest post I am still bearish and reckon the chances of the All Ords/ASX 200 hitting 6000 in 2014 are almost nil.

    Now wait for the rally past 6000 😉

  • 13 lachlan // Sep 26, 2014 at 7:49 am

    Greg the asx has certainly produced a bearish warning sign. It may yet fail to produce a hard sell off. And then maybe not too. All I can take from it to be on the lookout. S&P 500 still trading in it’s bullish channel despite the selling so far. Good time now for market watching though.

  • 14 lachlan // Sep 26, 2014 at 7:57 am

    USD gold is selling down too plus AUD gold is neutral and may join in…not looking ready to rally yet in any event.
    Gold juniors here steady but others already into further downside.

  • 15 Greg Atkinson // Sep 29, 2014 at 8:37 pm

    Well Lachlan the ASX has fallen below 5300 and has been there for a few days so I reckon next stop is 5200. Could be some blue-chip bargains on the radar soon although I personally will stay clear of the banks for now.

  • 16 lachlan // Oct 3, 2014 at 5:43 am

    Yes Greg CBA and westpac have had a strong run to here and could correct a little but for the time being they are bullish charts. Not that I want to buy something that’s trading into the clouds as I am sure you’d agree.
    I just had a look at some of the metals. Copper is not exactly selling off, not yet anyhow. Silver and platinum have just made new intermediate term lows which is interesting for sure but all up those metals have charts which are long term bullish still. Will have to wait and see now how this plays out. How much more downside is in this. AUD is interesting against the greenback. The flagging action gently downwards last few years is bullish and the chart looks long term bullish as it stands however this sudden downside has certainly clarified the case for intermediate term downside. Will be interesting to see where she gets to before buyers ramp it to new highs (assuming they finally do one day).
    XJO will be interesting from here.

  • 17 Greg Atkinson // Dec 11, 2014 at 3:05 pm

    Lachlan the Australian stock market is struggling to hold above 5200 now so I reckon any chance of 6000 being reached this year are now slim. Also most hard commodities have rolled over with their prices on the slide recently as well. If there are bullish signs out there then I am having trouble spotting them.

  • 18 lachlan // Dec 12, 2014 at 5:57 pm

    The long term technical trend is bullish Greg. That is the central vein of my comment above. For the xjo 6000 is a no for this year but it still fits the trend for next year…for now. If the AUDUSD falls through 80 then its secular bullish trend comes into question. Similarly gold is just above long term support now days. The stock markets are more bullish still in this sense. Dj has made new highs. But yes in the near term we can test 5000 on the xjo no doubt at all. Chances for 6000 this year are well and truly gone. Next year will be very interesting. The USD is elevated and oil/gold is very oversold. Stock markets could get smashed hard and still recover their bull market. Anyhow I am only stating facts about current technical trends. Shoes could be right yet and the stocks could hit new lows, that does not nullify the fact that today we are in a long term bull market. But we have a need of a fundamental case for that prediction. I used to think I could tell what was going on out in the world. But after 2009 I felt there there was too much I could never know to guess the big trend change. I still like listening to peoples ideas of course.

  • 19 Biker // Dec 12, 2014 at 6:42 pm

    Lachlan: “…there was too much I could never know to guess the big trend change… .” Join the club, Lachlan!

    I’ve attempted to recall anyone calling oil’s current demise… and I’m unable to identify any punter predicting today’s situation. Most called an entirely opposite scenario.

    It may well be that simple cause-and-effect scenarios, applied to buying, lead us down garden paths to penury. Taleb described this well when he wrote: “The stock market in brief: Participants are calmly waiting in line to be slaughtered, while thinking it is for a Broadway show…”

    … and…

    “The sucker’s trap is when you focus on what you know and what others don’t know, rather than the reverse…”

    Watching the long-term unfold, as we have here for many years, I’m sure Taleb got these two issues, at least, exactly right. If picking winners was easy, everyone would be very, very wealthy… .

  • 20 Stillgotshoeson // Dec 12, 2014 at 6:44 pm

    I’m not looking for the asx to hit new lows next year.

    2016 into 2017 could be on the cards. I expect Gold and Silver to make new highs around then too before the next major pull back in the precious metals markets.

    That’s going to put me around 50 then so that would be my last major run at specs and will be switching more to a defensive/income type investment strategy as I wind down towards retirement.

  • 21 lachlan // Dec 13, 2014 at 5:34 am

    Yes BP aren’t those scenarios themselves all questionable, yet there is often an overwhelming gravity attracting people toward them. When given black or white people will play in endless numbers. The nuances are overrun. I like to see people wanting to play though, people with spirit, but hopefully they adapt.
    Shoes, markets are definitely heading for interesting times. USDX has made a strong run. Oil gold and AUD sold down hard. At least it’s not boring….but backing winners ain’t easy either. My specs are still sitting there as intended, i look at them now and then with my microscope.

  • 22 Biker // Dec 13, 2014 at 8:28 am

    Lachlan: “When given black or white people will play in endless numbers.”

    Taleb has spoken thusly: “When conflicted between two choices, take neither…”

    We’ve come a long way since the days when one might have been charged for spruiking a share publicly. Maybe the internet opened that floodgate.

    We’ve ‘progressed’ from a basic tenet that ‘information is money’ to Taleb’s claim that “To bankrupt a fool, give him information.”

    We’ve been seriously considering WOW, below $30. Masters is costing them dough at present, but if WOW falls much lower, we’ll probably buy in. Their recent alliance with Macquarie (dropping HSBC) appears to be going very well for Woolworths Money… .

  • 23 Greg Atkinson // Dec 13, 2014 at 8:57 am

    Despite the obsession with oil in the mainstream finance media the reality is commodities in general have rolled over which is something I have written about for quite some time.

    Iron ore, coal, LNG & copper for example have all been slipping down over the past few months well. It isn’t just oil.

    In addition, the Baltic Dry Index has been screaming out “correction” for quite some time and finally it seems the markets have realised that economic growth in China is trending downwards and it won’t be up near 8% again.

    Having said that, I reckon the big mining companies like RIO and BHP are in the worth watching zone. Apart from that, I’m still pretty bearish regarding the All Ords/ASX 200 at the moment.

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