A “top-down” methodology may increase the quality of stock-picking,  but there is no guarantee that last year’s outperformers will be winners the next year. Indeed the most profitable securities are often those that have previously under-performed, and have been over-sold.

This post presents the charts of some of the indices in the ASX. This may be of interest to those who are planning changes to their portfolios for the coming year, and who wish to take into account sectoral characteristics.

Do remember that indices are not averages. Sectors are sampled, but indices are biased by selection and weighting according to market capitalisation. The largest stocks will therefore have a dominant influence on the chart appearance, whilst the poor performance of excluded minor stocks will have no influence. The stock composition of the indices is constantly changing with variation in the share-price (and market capitalisation). IPO’s and Delistings add to the changes.

As a result, an investor may successfully predict the best sector, but selected a stock that under-performs. For this reason I would usually prefer to invest in the top tier of stocks in each sector.

1. XAF The All Australian Index is an index of the top 50 ASX stocks by market capitalisation.

Range bound

• Share-price was range-bound between 5232 and 5664
• Uptrend in first 8 months but down trend in last 4 months of the year without breaking support.
• Both short and longer-term moving averages have converged, and seem likely to cross-over. (orange marker)
• Present trend is down-wards, but if the index were to rise above trend-line at about 5550 it would suggest a return to upwards trending in 2015.

2. XEC – Emerging Companies Index – 200 stocks

This is a valuable index for those who wish to invest in smaller capitalisation stocks that may have the potential for more growth than the top blue chips. It is composed of stocks ranking between 350 and 600 in market capitalisation that meet the set liquidity criteria.

End of year sell-off

• As one might expect the XEC was far more volatile than the XAF. The range from high of 1190 to a low of 915 was 275 points or 23%. These stocks have tended to be bought earlier in a rising market and sold earlier in a falling market.
• Over the  course of the year the index lost 140.5 points or 12.56% to finish at 978 points.
• The index has rebounded strongly from support at 915 to break the down trend-line with cross-over of the short-term moving averages.
• Technically it would seem likely that the recovery will continue with an immediate target of 1020 (38.2% Fibonacci level), and the next at 1050. (50% Fibonacci level)

3. XHJ – Health Care Sector.

This is quite a diverse sector including pharmaceuticals, biotechnology stocks, medical practice and software providers, hospital operators, pathology firms, medical device manufacturers, and marketers. It was easily the best performing sector with large cap stocks CSL, COH, ResMed, Ansell, Sonic and Ramsay springing to mind as leading the way.

The best performing sector (21.7% rise

The Healthcare sector was static in the first half of the year, with support at 13.982 points. In sharp contrast to other sectors and the XAO the index rose strongly with the trend accelerating, after the reporting season.

The Index rose from 14367.3 to 17,487.2, a rise of 3,119.9 points or 21.7 %.

The upwards trend was intact at the year-end, without loss of momentum. Furthermore the moving averages were well apart, suggesting that they will continue to appreciate in 2015.

4. XTJ – Telecommunication Sector

Trended higher throughout the year.

This was the second best performing sector with a rise for the year of 265.2 points to finish on 2086.8.The increase was 14.56%.

The year finished with an intact steep trend, diverging multiple moving averages, suggesting the sector is likely to continue to outperform next year.

Other Sectors will be studied in  a further post.

Other ASX

Categories: Chart Analyses, Financial News, Investment, Trading opinion