Bull Run or Bear Trap: Where is the Market Heading?

It is inevitable that when the stock market falls heavily, we see an increased number of people questioning not only the stock market but their advisers and the products they have chosen to invest in.

In the past, when using advisers, investors typically do what I call the dump and run strategy meaning they had an investment or financial issue, which they dumped on the adviser and then ran out the door preferring not to get too involved in the process.

Their expectation, at the time, was that the financial planner would ensure they get a consistently good return with their money. But when the GFC hit and that did not occur, investors blamed their advisers with many believing they could do better with their investments. This resulted in a huge amount of money moving away from traditional superannuation into self-managed super funds.

Have investors done any better in this latest market meltdown?

Over the past few years, there have been many reports indicating that self-managed super funds are worse off than if they had used an industry or retail super fund. The critics cite such things as high fees and poor returns as to why investors would be better off in traditional superannuation products. In my opinion, however, this argument is flawed and used as a scare tactic given that investors can and do achieve better returns by investing directly. And the fees an investor pays are not necessarily that high, given that many who service the industry offer very competitive rates.

Investors are now savvier than 10 years ago and they understand that markets move up and down. Further, they understand that taking an active approach to managing their investments yields better results than the passive dump and run process of the past. That said, they also realise that to achieve better results, it is essential to educate themselves and take an active role.

To answer the question as to whether investors have done better in the current market conditions, a large number have shared that they are doing well, and by and large these are the educated investors. That said, I am also hearing from a considerable number of investors who are not doing that great, as they are emotional and making poor decisions. Unfortunately, many of these investors are uneducated or ignorant as to how the market and investing works.

During volatile times, like we are experiencing right now and during the GFC meltdown, individual stocks and investments, such as managed funds, can fall as much as 70 per cent, and while times have changed people don’t. Remember, wealth is the transfer of money from the ignorant to the well informed, which is why I encourage those investors who want to take an active role in managing their investments to get educated.

What are the best and worst performing sectors this week?

Once again, the market was volatile last week causing investors’ concern, although it did trade up with the Energy sector leading the way up over 12 per cent. That said, the Energy sector is still down over 44 per cent for the year. Consumer Discretionary was also up over 11 per cent and Healthcare did well up over 10 per cent. Industrials was the worst performer rising over 2 per cent with Materials and Consumer Staples both up over 3 per cent.

Looking at the ASX top 100 stocks, around 30 per cent had risen by 10 per cent or more. JB Hi-Fi led the way up over 30 per cent followed by Nine Entertainment up over 27 per cent and Ansell up over 26 per cent.

The worst performers included Sydney Airport down over 10 per cent, although it was one of the best performers the week prior, which is where the current volatility is catching many investors out. The next worst performer was Virgin Money and Unibail-Rodamco-Westfiled, both of which were down over 9 percent.

What's next for the Australian share market?

We are continuing to see the market rise for one day before falling the next, which is the institutions and other major players using the highly emotional market conditions to play games to grab some short term profits. However, once the emotions subside, so will the volatility.

The market is trading up for now and as I mentioned last week, we will see a short rise over the next one to four weeks before the market falls away to test the prior low; therefore, I expect it could continue to rise for a further one to three weeks. How long and how far it travels in price in the coming weeks will be the key to understanding what might happen for the rest of this year.

If the market fails to rise above 5,900 points before falling to test the low, it is highly likely it will fall below the low of 4,429 points from last week. Given this, I still believe it is foolhardy to jump into such a volatile market, as it is currently moving on speculation, which makes it very dangerous, especially for the uneducated. Now is not the time for bravado but for patience, as the market will present many opportunities in the coming months to profit.

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.