Market is Strong and to Rise Above 6,200 Points

In this week’s report, Dale discusses why the Australian stock market is strong and likely to rise over the coming months, as well as how to find the right stocks for your portfolio.

Prior to online trading, the iPhone and the internet superhighway, the most common question I was asked by investors was how to find the best stocks to buy. Interestingly, despite information moving at lightning speed these days, nothing has really changed, given that I am still asked the same question today.

In the 1990’s investors would share how their biggest challenge was information overload, given that they were bombarded with newsletters, the media, brokers and other resources. But little did they know that the information tsunami was coming because now it is not just ten times worse it is infinitely worse. As a consequence, investors have become even more confused resulting in many opting to invest in an Index Exchange Traded Fund to ease their confusion.

How do you find the right stocks without having to trawl through loads of information?

In my experience, and some of the best advice I can give investors is that “less is more” and in today’s fast paced information flow, this is even more critical than it was 20 to 30 years ago. Unfortunately, both investors and traders mistakenly believe that the more information they receive, the better their decisions will be with many checking stock prices on their mobile phone and buying and selling stocks multiple times a day.

In my opinion, this constant immersion in information leads investors to make reactive decisions based on emotion rather than logic. I am pretty sure everyone has seen at last someone have an accident of some sort while there were walking and immersed in their mobile phone. This occurred because their attention was on phone rather than the bigger picture of what was happening around them. The same can be said for the stock market, as it is very easy to get caught up in the moment when you don’t have structure around your investment decisions.

There are some simple strategies you can use to guide your way through the virtual mountain of information. Therefore, the first thing I recommend all investors do is limit themselves to one or two very trusted sources of information and only look at this on the weekend when you have more time, you are relaxed and can absorb the information. This will lower unnecessary stress levels, give you more time to focus on what is important, and will ensure you make rational rather than knee jerk reactions when reviewing any market news.

What were the best and worst performing sectors last week?

The big story last week was the rise of the Financial sector, which was up over 11 per cent, as the big four banks all did well with three up well over 10 per cent. Communication Services was the next best sector up 5.83 per cent with Energy not far behind up 4.72 per cent. The worst sectors included Healthcare, which was down 2.47 per cent, while Materials was up 1.87 per cent followed by Consumer Staples, which was up 3.02 per cent.

Looking at the ASX top 100 stocks, Virgin Money rose strongly on Wednesday and Thursday, finishing the week up 23.21 per cent. Boral was also up 21 per cent followed by last week’s worst performer, Unibail-Rodamco-Westfield, which turned to rise over 18.62 per cent. That said, I wouldn’t get too excited about this stock just jet.

Of the big four banks ANZ was up 17.47 per cent, NAB was up 16.10 per cent while Westpac was up 14.72 per cent. While these are great results, I believe it is a bit too early to get excited about financial stocks right now. The worst performers included Worley down 7.18 per cent, CSL down 5.06 per cent and Newcrest Mining down 2.77 per cent.

What's next for the Australian share market?

After showing signs of indecision over the past six weeks, which caused the All Ordinaries Index to move in a sideways pattern, the market has finally chosen a direction, as it moves up. While investors want certainty, this is not how the stock market works, as it runs on probability. And while the probability over the past couple of months has indicated the market has been weak, the pendulum has now swung in the right direction, as the market is looking much stronger.

Over the past two weeks, I indicated that the Australian stock market would pick a direction soon and last week it did just that with a strong rise of over 7 per cent at one stage before closing the week up 4.70 per cent. More importantly, the stock market is now well above the resistance level at around 5,800 points.

Barring any negative news, I expect the current move up to continue over the next few weeks into mid-June and possibly late July. That said, we may see some short-term resistance around 6,200 points over the next two weeks. For those looking to enter the market, it would be wise to take a staged approach rather than a boots and all attitude.

For now good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.