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My comments on the XAO pretty much says it all this week.

In short it is a time to consider whether it is time to exit positions that are underwater or not performing as planned.  This is not (yet) a case of "The Sky is Falling" and the best advice is not to panic, stick to your trading plan, watch your stop losses and err on the side of conservatism. It is worthwhile still keeping an eye out for the occasional speculative short-term trade opportunity because, as my blog says, even in a falling market there will be opportunities with stocks that (unlike the market) are moving up and closer to their lows than their highs. Those stocks are better predisposed to achieve gains from pattern and resistance breaks – but always remember if the larger market is trending down, individual stocks that are rising are effectively swimming against the current and may fall short of target expectations.

The best outcome would be for the market to quickly correct to somewhere around 7000 points to open up new trading opportunities as prices again move up. The most likely scenario for a time is a period of sharp short-term rises followed by equally savage falls. It is possible that the improving Covid vaccination rates and a release from lockdown on the horizon for Sydney and Melbourne may see some misplaced enthusiasm from the ASX. While I'm suggesting lower prices are more likely there is nothing that says they can't go the other way - which is exactly what happened back in 2006 before the GFC. Perhaps we'll see that same pullback as May 2006 as the chart then showed exactly the same large and small price channels as it is today. Prices corrected by 12% only to push up 36% and out of the price channel until another 15% correction 12 month later, followed by those losses being recovered (plus some) before the GFC arrived, bringing a bear market and a 55% collapse in the XAO. Sound like fun? It wasn't. And yes, history does repeat - especially so in the case of the stock market. XAO longterm

 XAO May2006

No new stocks have been added to my Stocks to Watch as the negative market sentiment has impacted most emerging opportunities for now. As could be expected most of the listed stocks from last week fell back, however, most retained their potential to recover if the market does change sentiment and move up. I have removed MQG because it achieved my target and has since fallen back; BFG as it broke down out of the pennant pattern I had been watching; and IFM suffered a significant reversal in price.


Robert Norman

Phone: 0428 346 951

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