Heading higher

The annual reporting season is the climax of the market year. It is show-time, on a par with the presentation of the national Budget, but multiplied a thousand times.

It is a time for corporate scrutiny and accountability, with companies out to impress. Impeccably dressed Directors radiate optimism and largesse. Shareholders are treated with more than usual deference, unless they are openly antagonistic to the official pitch. Retail investors like myself are bamboozled with accounting jargon, and page after page of almost incomprehensible data and statistics.

Eyes turn to the broking analysts, and fund managers, the gurus of the balance sheet, and the profit and cash-flow reports.  Deepening frowns, penetrating questions, accusation and innuendo, are likely to excite growing anxiety.

The market response follows. Sometimes savage, sometimes fickle, but always unpredictable, it is the shareholder verdict. Acclaim, discontent, or merely indifference.

After the volatility of the reporting season comes a more considered response. The scene may be set for the dreaded September/October market down-turns, if overall market perception is negative.

This year seems to have surprised and corporate results largely satisfied the critics. The chart above is of the All Ordinaries Index (formed by the 500 largest stocks on the ASX by market capitalization). It is a Daily chart over the last six months.

It shows that August, at the height of the reporting period, was a month of strong buying support.

From a low of 5420, a sustained impulsive move emerged in the middle of the former trading range which broke through resistance at 5520 and continued to make a new high at 5670 before retreating. A double-top formed at the end of August warned of this pull-back.

In fact prices did ease last week, but today a rally has created a bullish-engulfing candlestick pattern which suggests that buyers could now return to the market and re-invigorate the upwards trend.

Categories: Chart Analyses, Trading opinion