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The ASX All Ordinaries March Towards 5000 – Been There, Done That

February 12th, 2013 · Greg Atkinson · 12 Comments

Recently every move upwards the stock market takes, no matter how slight, is greeted with almost ecstatic cries of joy from many analysts, finance journalists and assorted market watchers. It’s as if the ASX All Ordinaries was heading towards a new high and investors were being showered with money in the midst of a raging bull market that had no limits. Certainly there have been good returns of late for those investors who timed their entry into market almost perfectly, but for longer term investors it’s more of case of here we go again.

Context is important when talking about stocks & the stock market as is time.  At the moment most stock market watchers appear to be focused on the All Ords being at the highest level for a number of years which is true – however it is also still stuck in a rut which started some years ago and overall the market still looks to be trending sideways to me.

First let’s look at some charts focused on the recent bullish phase and see why many investors are getting excited.

ASX All Ords Index (XAO) 3 month chart


Clearly the All Ords has had a stellar run since it found a support base just below 4400 back in November 2012. It has basically been all uphill since then and my doubts about the Santa rally were obviously not warranted.

There’s little doubt that the 3 month chart of the All Ords Index is virtually screaming out “bull market”.

Now let’s review the one year chart.

ASX All Ords Index (XAO) 1 year chart


This chart confirms that the Australian stock market is technically speaking in a bull market, since the rise from the low in 2012 to the high at the end of last week is around 20%. For those who got the timing just right there were some very healthy gains to be made and not just from riskier stocks – but from blue-chips like Telstra (TLS) & Macquarie Group (MQG) for example.

But now if we start to look back further the current rally although impressive, is put into some perspective or context.

ASX All Ords Index (XAO) 3 year chart


During the last three years the Australian stock market has flirted with the 5000 level four times which includes this most recent flirtation. However each time it has reached the 5000 market it has been unable to hold at that level and has on average has fallen back around 10% fairly quickly after that mark was hit.

As you can also see on the 3 year chart of the All Ords, the fall-back in 2011 was particularly brutal with the ASX All Ords slumping from around 5000 points to just under 4000 points. Quick lesson – the mood of the market can shift from bull market optimism to bear market pessimism in just a few weeks.

If we now go back further and look at the All Ords over 5 years  (see below) then we can see that the current stock market rally is indeed significant but it still just brings the market up into a range in which it has been trapped for over 3 years.

ASX All Ords Index (XAO) 5 year chart


You can look at the 5 year chart in two ways I guess. On one had you can be encouraged that the market is now around the highest it has been since 2008 or you can be a little despondent when you realise that the All Ords is still way below the market high set in 2008.

Finally let’s look at the 10 year view and compare how the ASX All Ordinaries Index has been tracking again the U.S. Dow Jones Industrial Average.

ASX All Ords vs Dow Jones Industrial Average 10 year chart


Clearly the ASX All Ords outperformed the Dow Jones in the run up to the GFC and much of this over-performance was due to the mining boom. The All Ords also recovered fairly well in 2009 again which again was helped by the mining related stocks which were boosted by the economic stimulus measures taken across many G-20 nations and particularly in China.

What is interesting about the chart above is that it gives us a glimpse into how the All Ords might perform versus the DJIA if commodities prices were to slip back again & remain lower. You can see this reflected in the chart from around mid 2011 to mid 2012.

As for the Dow Jones, well this has benefited largely from Quantitative Easing (QE) and low interest rates in the U.S. hence the reason it has outperformed the All Ords over the last few years. However over the last decade the All Ords and DJIA are fairly close together performance wise.

So where will the  ASX All Ordinaries go from here? Well my guess is that once again it will flirt will 5000 and then fall back around 10% or maybe more. I have no idea when this will happen and it is also quite possible the XAO will keep pushing higher but at this stage I am still more inclined to take profits than to take long positions.

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

12 responses so far ↓

  • 1 Greg Atkinson // Feb 18, 2013 at 9:26 am

    Well the market is up again so far today. A while back (a few years ago) I suggested that 4800-5200 was the range I thought the market should trade around while the global economy sorted itself out.

    I then took 10% or so off this range to take into account the political mess so perhaps what we are seeing now is simply the market pricing in a change of government plus getting a kick up from low interest rates & margin lending?

  • 2 opinder // Feb 28, 2013 at 7:41 pm

    Dear Greg,

    SO Basically as per your article, I would like to ask Is it a good idea to buy blue chip stocks now and hold them for long term.

    Is this a good strategy to keep accumulating some good blue chip stocks like banking, mines, material stocks etc.

    I appreciate your reply.

  • 3 Greg Atkinson // Feb 28, 2013 at 8:23 pm

    Hi opinder. I try my best not to give too much advice because I really don’t feel qualified to do so plus every person has their own goals, risk tolerance levels, amount to invest etc.

    But a few things I will say in general:

    1. I don’t personally make big moves in or out of stocks. That means for me there is never “a time” to leap in and buy a heap of stocks or sell out of stocks. My view at the moment is that the market will correct and if that happens I will look at buying some blue chips stocks I have been watching. But remember, I missed getting into a number of these stocks last year when prices were much lower so my strategy isn’t perfect that’s for sure!

    2. You need to look at each stock even blue chips in detail. If you don’t feel comfortable doing that then perhaps buying gradually into a traded ETF such as ASX:STW is a good way to go.

    3. I am wary of mining stocks at the moment because I reckon the prices for many hard commodities will be under pressure this year. My view is that the mining boom has peaked and we are entering (or have already entered) a cyclical downturn for this sector. But I could be wrong.

    I’m sorry if my response is a bit vague but I hope it helps a little. Please also do plenty of your own research and if needed seek professional investment advice.

  • 4 opinder // Feb 28, 2013 at 9:11 pm

    Thanks Greg..I really appreciate your detailed response.
    Infact I was thinking of investing in ETF’s today itself.

    My strategy is to buy few blue chips slowly slowly as I
    don’t have too much cash anyways and hold them long term and keep getting divedends too.
    I might be wrong with my strategy but this is the
    only way I have got to invest.

    Many Thanks

  • 5 Greg Atkinson // Feb 28, 2013 at 9:40 pm

    Sounds like a good approach. Take your time I would say and don’t get carried away some of the media headlines. Also can I suggest having a look at these investment tips.

  • 6 opinder // Feb 28, 2013 at 9:54 pm

    Thanks a lot Greg..great article..I must say..

    I will be taking a very slow and long approach to
    investing in shares so that I can sleep well at night
    by not borrowing and only investing little at any given time.
    Plus getting dividends.
    I hope that will work for me in future..
    Thanks for the suggestions Greg.
    Many Regards..:-)

  • 7 Greg Atkinson // Mar 20, 2013 at 10:09 am

    Well so far the market has fallen back now around 5% from the recent high so it looks like the correction I wrote about is taking hold or?

    It will not surprise me if it drops down near 4800 this week.

  • 8 opinder // Mar 20, 2013 at 10:37 am

    Hi Greg,
    I remember you saying that last time. I was keeping an eye on the market and you might be right there by saying it will be 4800.

    I guess if the market zig zags a lot that could be a sign it can be due for a correction and it just simply can’t keep going up and up.. Otherwise the returns would be Massive I suppose..

    BTW will wait and see what happens and then try to pick some stocks which I missed out last year.

  • 9 Greg Atkinson // Apr 4, 2013 at 11:46 am

    Well opinder today the All Ords and ASX 200 are both struggling to stay above 4900 so I suspect we may soon seen the 4800 support level being tested.

  • 10 opinder // Apr 4, 2013 at 10:08 pm

    Hi Greg..
    You are right in saying..Lets see..I guess correction on its way too much zig zag happening

  • 11 opinder // Apr 5, 2013 at 9:34 am

    Hi Greg…

    I have been hearing a lot buying and holding shares strategy dead and buried etc. etc..

    What do you think about general..

  • 12 Greg Atkinson // Jun 9, 2013 at 5:44 pm

    opinder I tend to be a buy and hold investor that looks for value with some yield thrown in. But the last few years have certainly made me question this approach although I still believe it is a good strategy to follow.

    There are of course strategies that can be used such as shorter term trading plans and these seems to work out well for some.

    My view is that if you find a stock which offers good value in a company with a sound business you probably will do okay over 5+ years in most cases.

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