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There has been a lot of talk in recent times about whether the current Australian market rally will continue or if the brakes will come on. For some there has not been a lot of joy over the last month as expectations have not been met for the market correction that has been spoken about for so long. In my last article I discussed the need to follow your plan according to what your market analysis was telling you. Money has been lost trying to trade against the overall trend when there have been no clear signals to do this according to your Safety in the Market analysis.
This has left a lot of people wondering what is going on, and a lot have looked to the Trading Tutors Team for guidance. In times of uncertainty people look to be led or directed along the path. But is it the correct path? In this article we will take another look at the driving forces or sectors that are leading our markets.
The two sector leaders that have been the instigators of this August 2007 bull rally have been the Materials Sector (XMJ) and the Energy Sector (XEJ). Over the last two weeks the Financial Sector (XFJ) has just broken through some major resistance levels that were back at the July 2007 top.
Chart 1 – Sector Analysis Daily Bar Chart
click chart for more detail
Materials Sector – XMJ: The Materials Sector has shown the strongest rally in Time and Price since the start of the 2003 low. A repeating of the price range from the September 2006 low to the July 2007 high of 5132 would terminate at 16470 points. Currently the price scale is at 16000, which suggests more upward price movement can be expected.
Energy Sector – XEJ: The Energy Sector has shown the same characteristics as the Materials Sector – a very strong move off the August 2007 low. A repeating of the price range from the September 2006 low to the July 2007 high of 4730 would terminate at 16397 points. Currently the price scale is at 16260, which suggests more upward price movement can be expected.
The Materials and Energy Sectors have shown how just two sectors can drive a market to record highs. Based on what these charts are indicating, this trend shows no sign of changing at the moment. With the Financial Sector just coming into play, it looks like higher prices for stocks within these sectors can be expected. Like all good parties there must be an end, however, so keep an eye out for any indication that this party is wrapping up.
Keeping the Dream Alive
David Dixon
Trading Tutors Team
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