Plan your strategy for the downturn now!

So far it has only been a two trading day correction, but the severity of the share-market fall emanating from the US, is deeply concerning for Australian retail investors, particularly retirees.

The chart below is a 5 year weekly candle-stick chart of Australia’s oldest index The All Ordinaries. It was established in January 1980, and it is comprised of 500 of the largest companies listed on the ASX.

Today (06/02/18) the index fell 198 points or 3.2%, wiping about A$56 billion from the ASX. The probability is that it will prove to be a short-term correction of the order of 10-15%, seen every few years after the market has had a substantial rise.

However the XAO has still not exceeded the pre-“Global Financial Collapse” (GFC) high in 2008 after it crashed 30-40%. Australian investors still have vivid memories of the prolonged hardships it caused.

XAO Wk Feb 18

This post offers no formula appropriate for all retail investors, other than to state that for most, it may be best to ride-out the down-turn. Australia’s economy appears strong, so stocks could well soon rebound. Indeed, rather than sell, cashed-up investors could well seize on the present weakness as a buying opportunity, to add to their portfolios.

What I do wish to advocate is for retail investors to monitor the progress of the downturn using two useful technical analysis techniques, displayed in the chart above.

  1. Support levels (1-3) on the left of the chart, showing the percentage retracement values of each.
  2. Fibonacci levels on the right of the chart. Statistically most retracements find support between 38.2% and 61.8% of the previous impulsive move upwards.

Such monitoring may be a helpful guide as to when it is inappropriate to sell, and relatively safe to resume buying.

Disclaimer

Readers are advised not to rely on technical analysis alone, and to always seek advice tailored for their needs from their stock-broker or financial advisor.



Categories: Chart Analyses, Trading opinion

Tags: , ,

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