The Word is Spreading – ASX200 is Starting to Look Bearish

My responses to some media questions:

1. The Australian sharemarket is in ‘correction’ territory now – what does that mean for investors?

Indices trading at seven month lows is never a good thing. It attracts attention and almost turns investors bearish simply because of the attention it gets. For the last couple of months the 5400 level has been significant and done a great job of supporting the ASX200 index on numerous occasions, including after short sharp falls.

If it rallies strongly today, and maintains back above 5400, its recent drop to a seven month low will become a non-issue. If it continues to drift lower below 5400, you can easily foresee a retreat back to around 5100.

My very own sentiment indicator is indicating the index is worse than it looks as it has just achieved a new low for 2015 – its lowest level since mid-December 2014.

2. Can you tell what’s the general prevailing sentiment in the market now?

Definitely bearish. Indices trading at seven month lows is never a good thing. It attracts attention and almost turns investors bearish simply because of the attention it gets. As an example, should the index fall further and reach a new 2015 low, then that will attract headlines. It will be well announced and investors will take note and can be easily influenced to take action to become more cautious and make the falls self-fulfilling.

3. The Yuan devaluation may be the biggest factor behind the falls in the local market (as well as other global markets), but what other factors do you see affecting it?

I think Banks are having an influence, as well as the big miners. Collectively they have significant weighting in key indices – the S&P/ASX 200 Financials Sector has largely mirrored the ASX200 index throughout this year and equally is trading near 2015 lows and is trying to hang on. The exception to that is ANZ which fell to its lowest level since early 2014.

4. Any stock or sector specific that is being hammered/ or being spared from the market falls?

There are several companies performing very well over the last 6 months and remaining resilient to the general market. They are some household names but not necessarily the big companies that attract attention.

These include AGL, Aveo Group, Domino’s Pizza, Fisher and Paykel, GPT Group, Regis Healthcare and Sydney Airport. These stocks tend to come from more defensive sectors to include real estate, energy and consumer discretionary.

Stuart McPhee
Stuart McPhee
Australian private trader for nearly 20 years, author, trading coach, licensed adviser and regular speaker at major trading events all around the world. Graduate of RMC Duntroon and former Australian Army Officer.