Stock Market Falls to 7,544 Points: Will it Fall Further?

A long time ago I was taught that the quality of an answer is a direct reflection of the quality of the question you ask. This is a challenge that many investors face because often the questions being asked do not provide the answers that help them become better investors or to achieve higher returns. Let’s take a look at three of the most commonly asked questions that people search for in 2023 in relation to the stock market.

Commonly asked questions in 2023

The most common question is whether the stock market is trading up or down. Knowing this, however, only provides two outcomes, either it disappoints you or it gets you excited. What it does not give you is an understanding of how to achieve a better result because we don’t buy the stock market, we buy individual stocks. In addition, one trading day has little to no real bearing on any investment decision an investor should make, as following daily moves only makes investors more emotional.

The second most asked question is whether the stock market is open today. I am not sure what the purpose of this question is, but I am very sure any answer will not lead to a better understanding of how to make higher returns safely. The third question is, in my opinion, a better question as investors are asking why is the stock market down today. That said, it is rare to see investors ask why is the stock market up today, which suggests that those who are asking why is it down, are most likely displaying a fear of loss.

There are multiple factors that could influence the performance of the stock market on any one day or week, including a change in economic indicators, such as employment figures or retail spending. There could also be events like the COVID pandemic or natural disasters like we have seen in recent years or the aftermath of the 911 disaster in 2001, when the market feel heavily.

The stock market is a complex system, so knowing that the employment figures caused the stock market to be down doesn’t support investors to achieve better results. Instead it makes them more emotional, which often leads to poor decision making.

The better questions to ask is how can I learn to determine the value a stock or how can I learn to invest profitably in the stock market. Just knowing what a stock is or what caused something to rise or fall isn’t much use if you don’t understand how to turn that information into a solid investment strategy. In order to understand how, you need to ask better questions so you get better answers that lead to your desired result.

What were the best and worst performing sectors last week?

The best performing sectors included Communication Services up 2.64 per cent followed by Consumer Discretionary up 1.24 per cent and Utilities up 1.14 per cent. The worst performing sectors included Financials down 4.33 per cent followed by Energy down 1.94 per cent and Materials down 00.63 per cent.

The best performing stocks in the ASX top 100 included Orora Limited up 17.47 per cent followed by Sonic Healthcare up 16.23 per cent and QBE Insurance up 8.77 per cent. The worst performing stocks included The Star Entertainment Group down 20.53 per cent followed by AMP down 14.83 per cent and Commonwealth Bank down 8.17 per cent.

What's next for the Australian stock market?

The All Ordinaries Index was down last week closing 1.03 per cent lower and looking weak. It has been nine trading days since the high of 7,779 points and at one stage on Wednesday last week our market was down around 3 per cent since the last high on Monday 6 February. While the buyers tried to push the market higher on Thursday, which saw it rise around 1 per cent, the sellers returned on Friday wiping out the gain from the prior day. As many investors are becoming nervous with talks of a recession, has the market stopped falling?

In previous reports, I mentioned that he market may fall a further two percent to around 7,500 points or below and last Wednesdays low was 7,544 points, which is just above my target. So, it is possible that we have experienced the two down weeks that I have been predicting but we still need to confirm this, as there is still a chance that the market could fall further.

Last week I mentioned that if the fall is short in both time and price, it’s likely the market will turn to rise sharply and push through the previous all-time high to the next high sometime in March and I still believe this. However, we have to wait to see what unfolds this week, as it will tell us what to expect in the coming month. Right now, I continue to urge investors to exercise caution because other than a strong rise on Thursday, there has been no real sign that the low has occurred.

There is a possibility that my worst scenario that I referred to last week may occur, which is that the fall is more sustained, meaning we could see a fall over several weeks to between 7,500 points and 7,200 points. While the probability of this occurring is lower than the market finding support soon, it is still a possibility and we need to be mindful. Again, there will be many great buying opportunities in our market for those who are patient.

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 bestselling and award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.