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Let’s look at the Australian sectors and compare where each is at, in relation to the overall market.
Firstly, Discretionary:
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This sector is defying sentiment and many economic indicators. People are spending despite surveys that tell us they are cautious! This index looks strong but a pullback is due at some point in the coming weeks.
Energy:
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Energy is well off is two-year highs but is also showing strength and has more upside to come.
Finance:
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Banks have been one of the big drivers of our market but they are nearing a mid-term high. One should be cautious at this point as Banks are becoming overvalued and the risk of buying at these levels is high.
Healthcare:
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Health has been one of the outstanding sectors over the last year and has showed sustained strength. The sector still has more upside but is also nearing a mid-point high.
Materials:
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Materials has been one of the laggards but is now showing some upside bias, albeit not very strong.
Industrials:
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Industrials has been range trading over a wide band but there appears to be more upside.
Staples:
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Staples has more upside but there is still the risk of a pullback.
Telecommunications:
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Telecommunications – that is, Telstra, as it makes up most of this sector - has been a strong two-year performer but will also reach a mid-term high in the coming weeks.
Utilities:
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Utilities is following a similar pattern to most sectors – more upside but the risk of a pullback.
And finally the overall market, looking at a monthly chart:
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What we are seeing is an almost 50% retracement of the 2007 high and the 2009 low. This is a fourth attempt to break through.
Technically we are in a bull market (from a daily chart perspective) but on the monthly we need to see a break through.
For long-term investors who have not experienced much joy in the last few years, the recent weeks have been good news. However, we are still a long way from the boom times. The question is: Are the fundamentals sound or are we seeing an oversupply of money chasing too few assets?
To those not in the market: Sit tight, your time will come.
Enjoy the ride
Tom Scollon |