Australia’s Bull Run Continues

By Kenneth Robson on June 26, 2014 • ( 0 )

The quote below from Credit Suisse analysts Hasan Tevfik, and Damien Boey was featured in a news item on the Home page of the “nab-trade” website today. It arrested my attention because it suggested a target for the XJO of 6000 by year-end, close to the target a previous post in this blog suggested for the similar XAO index.

0528 GMT [Dow Jones] Credit Suisse lifts its S&P/ASX 200 year-end target to 6,000 from 5,600 as “de-equitisation” comes to Australia. “Investors will not have to buy any new Aussie equity this year,” says CS strategists Hasan Tevfik and Damien Boey.

“M&A has picked up, debt is the preferred form of finance and 21st Century Fox has de-listed. Limited, if any, net equity supply and continued solid demand promise to be positive for index levels.” The strategists add that the lowest cost of debt in a generation and recovering cash flows should encourage companies to further retire equity via M&A and buybacks.

“Companies that may benefit from the low cost of debt include M&A targets such as Myer (MYR.AU) and Beach Energy (BPT.AU), value enhancing acquirers such as carsales.com.au (CRZ.AU) and TPG Telecom (TPG.AU); and EPS accretive buy-backers such as CSL (CSL.AU). Index last down 0.6% at 5401.4. (david.rogers@wsj.com; Twitter: @DavidRogersWSJ)

The authors cite factors such as:

greater reliance on cheaper debt instead of equity
continuing switching from cash to equity by investors chasing superior returns
possible increased M&A activity in the 2H 2014 with possible targets such as Myer and Beach Energy. In addition other companies (CRZ, TPG) may seek to grow via acquisitions
improved corporate cash flows encouraging them to retire equity via buy-backs (e.g. CSL)

Their comments motivated me to look again at a chart of the XJO. Of late I have taken a renewed interest in Daryl Guppy”s Multiple Moving Averages. (MMA).These charts can be quite informative with observations to be made such as:

a clear entry signal for medium to long-term investment in full cross overs of both the short and longer-term averages.
a market evaluation of a reasonable share-price for the stock(s), using these averages.
the investor can distinguish between short-term “noise” and long-term trend by basing entry and exit on the longer-term averages, such as the 60 period average.
convergence and divergence of the MMA lines gives a visual clue to the evolution and strength of momentum, Weakening of momentum may be an early signal to exit to a stock with increasing momentum.
subtle and constant variations in the strength of the trend can be easily eye-balled, by looking at the direction of the MMA’s

A two year bull-run set to continue.

Observations

This chart clearly shows an ideal entry time zone of medium to long-term investment in and around August 2012.

In the intervening two years up until the present time there have been four well-defined periods of share-price retracement.

In each case the short-term averages dipped into the longer-term traces but soon rebounded.

This appearance would have encouraged investors to wait out the retracements and to stay with the strong long-term trend of two years duration.

To the present time, the longer-term averages remain fairly well-spaced, and their direction is still upwards. No need to take fright and to pull out of one’s investments,