Value & Volatility in the Australian Market
What does this mean for investors? Well, we will go into more detail in a special edition weekly update to our Australian Small Cap Investigator subscribers this afternoon, but in the meantime we can offer this.
There are opportunities in this market. Not all of them in the obvious places. It is important to remember that the market is very volatile. Last week the CBOE Volatility Index (VIX) hit an all-time high of 70. So what? For the previous six months it was ranging between 20 and 30 and even that was considered to be a volatile period.
Last Friday we pointed out how the volatility in the Australian market had reached amazing levels – nearly two thirds of trading days on the ASX in the last three months have seen a rise or fall of greater than fifty points.
Since then the volatility has continued. On Friday the S&P/ASX200 closed down by a huge 360 points. Yesterday it closed higher by 221 points. And this morning it has followed the lead from Wall Street to be trading over 200 points higher.
Our only other point of caution is that despite the excitement of the last two days the market has still only recovered to just above last Thursday’s trading levels.
We are looking at buying opportunities, but it is definitely a case of proceed with caution.
Stockmarkets Reacting Positively to Cash Injections
For the majority of the time the markets don’t care about anyone’s individual opinion. Ours included, just in case you thought we had a higher opinion of ourselves.
For instance, we/you may think that the global teamwork by governments to prop up zombie banks is a foolish waste of government and taxpayer resources. We/you may also think that the solution does little to address the cause of the problem.
And we/you may further think that left to its own devices the market would have worked things out.
At the moment, the market doesn’t care about that. Instead what it sees is billions and trillions of dollars being poured into the financial system by governments in North America and Europe. In Poker parlance the government has shown its hand and then gone all-in.
It doesn’t have any more chips left. This is it. It had better work.
So far, the market loves it. And it’s not surprising considering most of them were cheering for more government intervention. Of course for most of the traders, analysts and brokers they had a vested interest in seeing this happen.
They have seen Lehman Brothers, Bear Stearns and Merrill Lynch collapse. Their jobs were on the line if there wasn’t a coordinated attack by US and European governments.
Which Sectors to Buy?
Taking a look at the market performances this morning, the answer seems obvious:
- BHP up 5%, Rio Tinto up 6%, Fortescue up 29%
- ANZ up 8%, NAB up 9%, Macquarie up 14%
There’s the quick money. Taking a look through most of the other resources stocks in the market, the price gains are even higher.
The resources and energy sector will remain a big part of our focus in ASI. But with the recent pounding the market has taken there are other opportunities as well. There are opportunities to buy into companies that are producing sustainable revenues and profits.
Many of these share prices have been dragged down with and beyond the overall market. This is where we will be focusing much of our attention over the next few months.
‘Swarm Trader’ Gabriel Andre takes a look at the Materials sector below and sees plenty of upside.
Cheers.
Kris.