This post reviews charts of the All Ordinaries Index (XAO), the Materials Index (XMJ), and the Energy Index (XEJ) to look at the role of the falling prices of crude oil and iron in the present down-turn in the Australian Stock Market.

Recovery of the All Ordinaries Index (XAO) stalls in 2015

The recovery of the XAO from the low of 3048.4 on the 13/03/2009 stalled in April 2015 at 5966, 86% of the pre-GFC high of 6877.3, just when there were expectations for further gains. Instead there has been a retracement of 17% with a fall from just under 6000 points to just under 5000.

A 12 month daily chart of the XAO for 2015 shows this set-back in greater detail.

Some forecasters are suggesting further falls this year but in September/October the XAO formed a double bottom, and has lifted off these lows to be 5158 at the last close. There is not yet technical evidence of trend change, however.

The Materials Index (XMJ) chart, reflects the adverse effects of the falling iron-ore price.

This index is now back to the post GFC low of 6503, representing a fall of 62.5% from the pre-GFC high at 17350. The index remains in a down-trend, threatening to break through support at 6500, and is a major reason for the recent decline of the XAO.

The price of iron-ore has fallen below $40 to US$38.90 and threatens to go lower. Can investors seek solace in the thought that desperation selling often provides profitable buying opportunities? Will producers belatedly cut production?

The Energy Index (XEJ) has been savaged to an even greater extent.

The fall in the Energy Index, reflecting the price of crude oil, (now approaching just $40 per barrel) is also 62.6% below the pre-GFC high, but is much lower than the lows that followed the GFC. The trend is still down, and further falls are likely.

At present there is no sign that the plight of iron-ore and crude will change to allow the ASX to recover further. The hope is that other sectors will out-perform.

Categories: Chart Review