I have a VERY long term chart of the All Ords and the Dow on semi-log scale so direct comparisons can be made. (Semi-log means that everything is measured in percentages which is what matters long term). It is interesting that after the fall in 1987 our market took nearly five years to form a base. During that time however, the Dow had recovered all the way back up to and exceeded the peak set in 1987. Sound familiar. This time we have spent four years and barely made any progress from the lows set in 2009 but New York is back up to its previous peak. Once the Australian market broke out, it was one of the top performers right through to the peak in 2007.
Now I am not going to say that the exact pattern will repeat but the potential is there and we do look to be trying to break out.
On that happy note – we have had an exceedingly frustrating week. Can’t complain as I was looking for this fourth wave on the S&P to continue and I have said how horrid fourth waves can be. The concern I have is that it is easy to make the argument that so far it is absolutely perfect and we have come back to the EXACT SPOT I mentioned previously. I don’t like things being too perfect because that is usually when the market comes up from behind and gives you a whack!! Also, I usually like to see a bit more of a panic to complete a fourth wave and we haven’t had that. However, we have had plenty of pessimism. One could be mistaken for thinking that the market had fallen 20% or something similar to hear the bearish talk (hard to believe that despite all this talk, our market made a new high for a bit over a year on Tuesday) so on those grounds alone I can make the argument that a bottom has been reached on the SPX. Hopefully we will get confirmation in the next couple of days.
As mentioned last week, my next timing box comes through on 16th/18th so I will be watching that time line with interest.
At the same time my Genius index has fallen back to 64% after being over 80% three weeks ago. This week’s figure is the lowest in 13 weeks.
I have been giving quite a bit of thought to the subject of the low volumes that our market has been experiencing. I had been quite concerned that all my main indicator stocks and indices were up to where overhead resistance has been built up over a considerable period. However, I am now wondering if this concern is unwarranted.
Consider this – when the stock market crashed in 2008/2009 most people sold vowing never to return. Those that didn’t sell during the panic have gone through a period when the market has just been grinding sideways in a range of a few hundred points. Many of these investors have become completely disenchanted with the result that, slowly, over this period we have seen even more flee to the perceived safety of investments such as term deposits and bonds. So I am wondering if I am wrong to worry about low volumes and what I thought was a lot of overhead resistance - perhaps there is very little and we may in fact have developed a vacuum overhead. This may be the reason we have seen our index put in such a good performance since early September.
One other point on this subject – over the years whenever I have heard sorry stories from brokers about how bad business is, it is usually near the end of the cycle. Been plenty of that recently including on-line brokers.
Does all fit with my first comments today about the performance of our market during a comparable period.
Because I believe we have a big move in commodities still to come, I have naturally been watching for what may in fact trigger such a move. QE3 with its obvious inflationary implications is high on the list. But I was around when we had a previous “oil shock” and when I hear the news coming out of Iran each day, I can’t help but remember the effect they had on oil supply once before. Oil is following my chart beautifully at the moment and looks to be trying to build a base here, but I think it is worth keeping the possibility of another oil shock in mind when analysing this market. Just amazes me that all parties concerned seem to have absolutely no recollection of what happened last time. Talk about history repeating.
The recent low of the iron ore price – remember when the world was going to end according to all the projections for the Australian economy - was $86.70. Last week’s high - $117.20. That is an increase of 35% in just a few weeks but nary a comment from all those “experts” that were so vocal a short time ago. The iron ore price is still in a downtrend and there is no way that I can say that it won’t come back and have another look at these lower prices, but as far as I was concerned, I was looking for such comments to mark a low and that has certainly been the case.
Coal prices have been on my radar for a couple of weeks now. The price was off a couple more bucks this past week but interestingly, coal stocks in the US have been performing very well. Despite this I would be a wee bit careful in this sector until we get a clearer picture on the trend of coal prices as I am not happy with this move down.
To try and summarise – the SPX has met my first downside target but as yet I still don’t know whether this Fourth wave is complete. The XJO finished two points lower than at the same stage last week – hardly a panic situation. I still need confirmation that the trend is to continue up but as always, I have to repeat that the risks are high. Hopefully this week the market will give us some clearer signals.
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