Many people attempt to time the market, although arguably impossible, it’s a natural human tendency to want to get it "right".
Concern about the stock market appears to be high, particularly the Australian market. Investors think the US market is overdone, others think the Australian market is too lacklustre, either way worry is winning the day, so some are reluctant to make a decision.
Viewing price action on a chart is one form of analysis, examining economic conditions of economies or companies is another, a combination of both is widely used. We hear repeatedly on the news economies are improving, so I thought we would look at some price action of the Australian ALL Ords (top 500 stocks) and see what that may tell us, bearing in mind no method of analysis is perfect.
Above is a chart of the Australian stock market, displayed over an 11 year time frame, in a monthly scale. The market peaked in late 2007, fell hard during the GFC, and has been in a slow recovery since 2009. Hopefully for most of you, would be the observation that the long term trend line has broken up, indicating that economic concerns and therefore price resistance, has been broken. However, there appears to be a “problem”. The word problem is highlighted because from a trading and investing perspective there are no problems, but conditions to be considered.
I have added a volume indicator (On Balance Volume, if you want to know more about this indicator, there is a link below).
It is clear to see that this indicator (and no indicator is perfect) is suggesting that buyers are not committed just yet, it has not broken up through its trend line, like the price recently has. The price action of the All Ords is not being confirmed by the OBV suggesting the amount of money flowing into the market is not matching that price action. Volume is still resisting. Is this a worry?
Perhaps. As I have repeatedly said the All Ords price action is dominated by the banks and big resource companies, and unless they rise TOGETHER, the index appears lacklustre. So what now?
Until the volumes improve and that OBV line breaks up like the price chart has, it seems more probable that the Aussie index will continue sideways a little longer. Now this could be a few weeks or a few months, but when it does break up a quick race up to the old 2007 high could easily happen.
Overall this is a strong looking chart, fighting to get through old resistance of price and volume. Many stocks apart from banks and miners have been in strong trends for some time.
It appears only a matter of time before buyers overcome sellers and the All Ords index rises more. When will that happen? If only we knew! The best thing to do is stick to your method and buy your signals, size your trades according to your personal risk profile, and let winners run by not selling till the trade gives a sell signal. Buy, size, sell. Simple.
Links below are for the free 52 week highs, with my weekly market comments, also Peters Portfolio and the link to more info about OBV.