Monday 7 April 2008

An interesting first quarter

2008 has proven to be a very "interesting" year so far for the Australian stock market. The chart of the All Ordinaries Index below shows the massive sell-off that occurred during January, and the very bad start to March which retraced and exceeded the earlier lows before recovering almost half the losses since January 1 in just the past two weeks.

From here I expect the recovery to taper off, and the index could trade within a narrow range for the next couple of months barring any unexpected good or bad news. Hopefully the market has established a support level around 5200, and will slowly recover during the remainder of 2008 back towards 6000 or above.

Until I plotted this candlestick chart I hadn't realised that the January lows were almost as bad as the bottom reached in March. My personal net worth chart showed the March dip to be considerably worse that the low reached in January. I think this is due to the January low being very short-lived, with the market bouncing back from the lows within a day. My net worth includes several managed fund investments which often report price changes the next business day, artificially smoothing the worst of the daily ups and downs by trailing the stock market gyrations by one day (probably a good thing for my peace of mind!). In comparison the March decline was more gradual and the index stayed around the lows for several days, which allowed my net worth calculation to fully reflect the bottom.

Copyright Enough Wealth 2007


mOOm said...

Yes, March's close was substantially below January's. I'm expecting a pretty strong performance going forward though the next few days should be sideways to down.

Anonymous said...

Recently, the IMF says Australian property prices are 25% inflated and that Australia has one of the biggest property bubbles in the Western World.

A sharp correction may have negative effects on the stock markets. said...

Some property markets in Australia certainly look overpriced - such as WA, SA and TAS - compared to the tradionally more expensive Sydney/Melbourne/Brisbane markets. But they probably won't correct until the commodity boom ends.

I'm not sure a weak property market would necessarily have a negative effect on the Australian stock market if the rest of the economy is still OK. Often if investors stop investing in real estate they divert their money towards the stock market and vice versa.