Market Outlook for 2H 2014

https://technicality.me/2014/01/01/charting-an-investment-strategy-for-2014/

It is now six and a half years since the global financial crisis bombshell exploded on the unprepared stock-markets of the world, sending asset values into free-fall.

Retirees exposed directly or indirectly to equity markets were severely affected, having to sell oversold shares for income, and unable to take advantage of the many buying opportunities.

Many became spooked by the decline in their portfolio capital, and quit the equity markets, often when prices were at their lowest. Those who have stayed with their positions have had to wait far longer than they thought, for the expected rebound.

If markets were fair the Aussie indices would be making new highs again, whilst the USA markets responsible for all the global pain in the first place continued to languish. Not so. Undoubtedly it has been the billions of dollars the US government has used to stimulate markets by way of quantitative easing that has enabled its markets to recover first.

The most representative of the US indices is the S&P 500 index. This index reached a pre-GFC high on May 30 2007 of 1530.23 and a post GFC low of 676.53 on March 9, 2009, a decline of 56% in less than 2 years. It took four years for the S&P to then recover the ground it had lost, but recover it has, making a new high of 1614.42 on May 3, 2013. Since then the index has continued to forge ahead making new highs with the latest being 1949.44 on June 6, 2014.

At the beginning of the year it appeared that the Australian market having reached the 61.8% Fibonacci retracement level for the S&P/ASX 200 index (XJO) of 5400 would continue to increase in 2014 with a target at the pre GFC high of 6851.5 by the year-end. Historically every market reversal soon or later comes to an end, with new highs.

I have chosen a long-term monthly chart of the S&P/ASX 500 (XAO) index, provided by Incredible Charts, to show the current performance of the Australian market to June 2014, instead of the XJO  in the belief that it is more representative of the broad range of Australian stocks.

This year thus far, the XAO has failed to continue climbing as expected but neither has the 60% Australian market crash of 2014 predicted by serial Jeremiah, Harry Dent.

 A long way from recovery yet.


A long way from recovery yet.

 

Technical observations

  • The XAO remains in a long-term uptrend lasting 2-3 years.
  • The GFC downturn recovered to the 61.8% Fibonacci level at about 5500 some nine months ago.
  • The index penetrated this level, and has found support, but the break is not decisive.
  • Last year’s impulsive move has stalled this year, suggesting that a 6850 target  is unrealistic by the end of this year.
  • An alternative target could be the resistance level at about 6100.

Conclusion

If corporate results in July/August are predominantly positive a 6000 target could still be attained by the end of the year. With many smaller cap stocks still well below pre-GFC highs, after many have undertaken reconstructions to improve profitability, better results can be reasonably expected, but unfortunately Australia is unlikely to see our indices make new highs this year.



Categories: Chart Analyses, Investment, Technical Analysis, Trading opinion

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