Monthly Archives: November 2015
There is wide diversity of views on future market moves, ranging from very bearish to very bullish. The Australian market has been much weaker than overseas markets but is it now gaining strength? In the light of many uncertainties, including low interest rates, low inflation and low world growth, should investors be buying stocks now? Technical analysis provides some insights into market action and may answer these questions.
The following analysis is applied to the weekly chart of the ASX200 over approximately the last 8 years. The dominant feature of this chart is the bear market of 2008 and here Fibonacci analysis has been applied to this bear market. The 50% Fibonacci level has in the past been a very useful predictor of future support and resistance for the Australian market. In the ASX200 chart below the 50% Fibonacci retracement of the 2008 bear market at 5000 (the horizontal… Continue reading
Recent falls in equity markets now apparently offer some great bargains particularly with the blue chip stocks many of which are showing grossed-up yields of 10% or more.
But sometimes the bargains are transient. The price of BHP shares as a result of the mine disaster in Brazil seems to offer a great opportunity to buy into one of the best mining companies in the world. And yet it now appears with the liabilities which will result from this disaster and the continued fall in commodity prices, that not only will BHP be forced to reduce its dividend but it is likely that the share price could still fall significantly. One thing that analysts fail to mention though, is the Australian dollar factor. Should the value of the Australian dollar continue to fall, perhaps to less than 60 cents then this will be very significant for BHP and… Continue reading
Most investors are susceptible to psychological pressures. If bullish, they tend only to take note of positive news and if bearish, they only take note of negative news. There is a bias against any news which does not fit their thinking and it tends to be ignored. With a market perspective biased by psychology, often the news that is noted as being important may merely be of a transient nature and of no long term significance. This is particularly true of the current market where investors really have no alternative but to invest in equities in this extraordinary low interest environment and as a result have a bullish bias. In this context it is worth considering the pros and cons of the current world economic situation.
On the positive side
• News that in China the Shenzhen and Hong Kong markets will be linked suggesting further opening of the Chinese… Continue reading
In this difficult investing environment with historically low interest rates, investors are now aggressively searching for yield. Investors who used this approach to buy big cap stocks such as Telstra and the banks which pay high dividends have done well in recent years but this is likely to be an unwise strategy in the future.
Most companies continue to look after their shareholders with dividend policies which maintain dividends and increase the dividends over time. To continue to maintain their dividend policy at a time when profits are flat or falling means that they have to increase their payout ratio. If they increase their payout ratio then funds are not retained, so equity is not increasing. Assuming that a company maintains its ROE and pays out 100% as dividends, then its equity remains constant so earnings don’t grow and dividends cannot increase.
Using this logic, the high yield strategy… Continue reading