Australia’s Bull Run Continues

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.

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,



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

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