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The last two weeks have been interesting in our local markets to say the least. Since the August 2007 lows around 60% of our ASX Sectors have managed to recover to a reasonable level. If you were one of the unfortunates who held positions long and rode them all the way down, you are probably just rising from your knees after thanking the trading gods for this recovery. But how many of you will look back to this tumultuous phase in a week or two and remember the signals that were there to see?
Chart 1 illustrates the overall position of ASX Sectors since the August 2007 lows. The sectors driving the current upward trend are Materials and Energy. At the time of writing the Materials sector is moving into a period of uncertainty, whereas the Energy sector has continued its upward move. What comes as a surprise is that the Finance and Property Trust Sectors have also managed to post a decent recovery from the August lows. Let’s take a closer look at some of these sectors.
Chart 1 - ASX Sectors Daily Bar Chart
click chart for more detail
Materials Sector: A long-time favourite for Aussie investors. Stocks such as BHP, NCM, and RIO are widely held, and for good reason. The charts on these stocks show them trading at or near all-time highs and forming double and triple tops. These patterns offer excellent form reading techniques for educated traders.
Energy Sector: The other recent top performer. In my view, what happens in this sector will determine whether our local markets can stretch beyond the July 2007 highs. Companies such as CNA, CTX, STO and WPL, all of which trade in the ASX 200, are also showing patterns that are potential warning signals.
Financial Sector: In the US this sector has been receiving most of the press coverage, so it’s no surprise that our own finance sector has come under scrutiny. ANZ, CBA, NAB, and WBC are the big four banks in Australia, and they should offer good shorting opportunities once the market gives the signal.
This week takes us into an important period in the markets, the spring equinox. Last year the equinox signalled the start of a bull run up to the July 2007 high. Was that high the end of the bull run, or was it the completion of another upwards wave? Is this latest surge the final wave in the bull cycle? Interesting questions, but not the main point. I’m ready to trade the plan that works according to whatever the market offers. Don’t listen to what people say. Pay attention to what you see.
Keeping the Dream Alive
David Dixon
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