Nothing Surprises the Market

Let’s note a few things on the recent election that, perhaps, haven’t been mentioned before.

One aspect of the campaign was negative gearing policy.

And in one article I came across about this had to do with warnings sent to tenants from their real estate agencies.

Tenants complained they’d received emails, pamphlets and the like about Labor’s negative gearing changes during the campaign.

The Australian Electoral Commission said they’d received numerous complaints from tenants about this.

The gist of the emails was that tenants were told rents would rise should a change in government take place.

Now, let’s stop for a moment.

Leaving aside all the ethical aspects of sending out such material, can you see a bit of a problem with all this?

It suggests that what sets the weekly rent, is all about landlords’ tax concessions.

In other words, real estate lobby groups are suggesting, landlords could immediately raise their rents to cover any shortfall, should a change of government take place.

This sort of news appears regularly in the media and goes unchallenged every time.

What it implies though, is that landlords everywhere are holding back. That they’re refraining from charging the full rent that the economy and locational advantages afford.

Anyway, I leave that with you to think through.

There’s a lot of what I call junk news out there. Much of it is conflicting. Much of it misleading.

But one way to sort through all that, is to bring up a relevant chart. I’ve found it useful anyway.

Charts are useful because they often reflect news which isn’t commonly known.

It could be the big new contract which is close to being signed. Something that could totally re-rate a company. Or maybe the big new mineral find, which looks promising from the get go.

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Nothing really surprises the market

Potential takeovers are another one, I’ve found, where the chart often moves well before the news is made known to the public. But whatever it is, it just seems that nothing really ever surprises the market.

This is why there is nothing more important than learning how to read a chart. And why you only ever trade with the trend.

Because the chart is often pricing in conditions as best it can, weeks and months ahead.


Let’s start putting this to practical use.

When it comes to property, one stock that may give you a bit of feel for market sentiment is REA Group Ltd [ASX:REA].

This company receives revenues from property listings and advertising. A company like this will reflect general interest (or lack thereof), in the housing market.

If property is on a downward spiral, there’s likely to be less listings and less interest in the property market overall. That would add up to softening revenues for a stock like this. Which ultimately should show up in the trend of the chart.

Anyway, so what’s the chart saying?

Here’s the daily chart of REA Group…

Money Morning

Source: Optuma
[Click to open new window]

A couple of things…

First off, if Aussie property is in a downward spiral, you’d think stocks like this would be breaking lows on softening revenues.

It’s doing the opposite. It’s busting tops. It’s just another reason why I’m a little cautious on calling the ‘last rites’ on Aussie property just yet.

But there’s one more thing I can say about the chart.

And it brings us back to where we started. The recent election.

The result seemed to surprise many of the pundits. And a Labor win is what all the polls were suggesting as well.

But see how the result may not have surprised the Aussie stock market.

Note the two days trading just prior to the election. The Thursday and Friday, which I’ve pointed to.

It doesn’t suggest a Labor victory, and the associated negative gearing, that might come with such a victory.

I’m not suggesting markets knew a Coalition victory was in the bag. But the charts suggest they did take a punt on a Coalition victory and business as usual.

And you may come to find, markets often have a habit of getting these punts right.

Terence Duffy,
Chartist, Phil Anderson’s Time Trader

PS: Download your free report to learn ‘Three Golden Rules for Investing in Pot Stocks’. Click here to download.

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia