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As we turned the corner into the new financial year its seems the market is performing a U turn when compared the first 6 months of 2009. Whilst the ability to analyse and individual market is a key skill, the ability to look at what sectors are perform ing (or not) can provide some insight into where the areas to watch for movement are.
Taking a look at the XJO (ASX 200 Cash) figures, we see the March 2009 low launched into a surge in overall price strength across the Australian exchange. This has been followed in recent time by a moderate sell off. We should investigate what areas of the economy lead our prices higher.
Chart 1 – Daily Bar Chart XJO
click chart to enlarge
You do not need an economics degree to work out our major drivers in the economy are mining, energy and financial stocks. Each of these areas of the economy has its own index that measures the overall performance of the sector. Knowing what the hot and cold sectors are helps us align our direction on the underlying stocks, and falls into an approach that looks at the stock in the sector in the broader economy.
A quick check on these three areas shows us that the main drivers have been mining and energy with the finance stocks travelling sideways since April.
Chart 2 – Daily Bar Chart XFJ
click chart to enlarge
Charts 3 and 4 show how the mining and energies were the stocks that pushed the index higher from May into June.
Chart 3 –Daily Bar Chart XMM
click chart to enlarge
Chart 4 –Daily Bar Chart XEJ
click chart to enlarge
Now that we have seen the commodity prices fall on the world stage in a short period this has translated to the stocks in those sectors. The savage beating of the finance arena has placed it in somewhat of a holding pattern as it still has a lot of work to right the system of the money markets.
So this leaves us thinking if our market is going to head to higher prices in the remainder of 2009 then who will do the heavy lifting? Unless the commodity complex can stabilize and demonstrate that demand is likely to increase we may see some challenging and choppy markets for the remainder of 2009.
Good Trading
Aaron Lynch
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