If you stand too close to a beautiful painting, you don’t get a true appreciation of its beauty.
So maybe we should be thankful that the Mona Lisa is sectioned off…that you have to stand behind a velvet rope about five metres from the painting.
Stand close to a Jackson Pollock and it just looks like a bunch of squiggly lines, but stand further away and…OK, bad example.
Anyway, the point I’m making is that when you look at something close up, you don’t necessarily see the same thing as when you stand further away.
Right now, that’s the dilemma facing Australian stock market investors, because the ‘close view’ and the ‘far view’ give investors a mixed message. We’ll explain how below…
If you look at the S&P/ASX 200 up close you get this picture:
The market has gained 16% since the June low. That’s a pretty good return by anyone’s standards.
If you’re a trend stock trader, you could make a pretty good argument to say the trend is up…follow the trend.
On the other hand, 16% is a big move. Maybe this is the top of the market and it’s time to sell.
Hmmm. Maybe we’ll look at a longer term chart to get a better idea:
Double hmmm. We’re not sure that helped.
Australian stocks are close to the mid-point of the five-year high and low (it’s right at the mid-point of the three-year high and low). Our technical trading guru, Murray Dawes, calls that the Point of Control (PoC).
What’s an investor to do?
Make or Break for Greece? Not Again…
That’s the thing. Look at the above chart again. Investors have been in this spot since the end of 2009. The stock market looks as though it’s about to take off and it’s time to pile in, then you get headlines such as this from the Financial Times: ‘Greece faces “make or break” year’.
Then what happens? That’s right, the stock market spirals down again.
As we’ve said for some time, it makes it tough for investors to plan. Most investors are too scared to buy when the stock market is low. Yet when they finally pluck up the courage to buy stocks, the bad news hits and stocks fall again.
The thing is it’s easy to look at the broad market, assume it’s too scary and just give up.
For instance, in the past few weeks we’ve read a bunch of stories about the Australian liquefied natural gas (LNG) market, such as this from the Australian:
‘Chevron’s Gorgon liquefied natural gas venture, the nation’s biggest resources project, has unveiled a $9 billion blowout, with labour costs and shortages and bad weather blamed for boosting estimated development costs to $52bn.’
Reading that, an investor could think that the LNG sector is a bad bet. Yet the LNG stock we backed in Australian Small-Cap Investigator has just revealed that:
‘…the estimated total cost of the XXXXXXXX XXXXXXXXX XXXXXX Project remains at US$1.1 billion. This capital cost includes the engineering, procurement and construction (EPC) for the First LNG train of 1.9 million tonnes per annum (mtpa) LNG production capacity…’
Not only that, but while other LNG projects see costs soaring, with some projects even under threat, this same company has just announced a deal to propose building a new LNG project in Louisiana, USA.
Or take the Aussie mainstream media. We’ve written here and in Australian Small-Cap Investigator that mainstream media has to come up with something new or die.
Clearly we weren’t alone thinking that way. Most Australian media stocks have slumped over the past five years. Some of them are down more than 90%.
That’s a reason to stay away from them right? Maybe. But at a certain point a stock price becomes so cheap that it’s worth taking a punt on.
We certainly wouldn’t suggest putting your life savings into them, but as a punt…if you’re after a big bang for your buck (and you’re not afraid to lose if things don’t turn out right) then this is a sector that could give investors some of the best returns over the next year.
Aussie Bounceback Belters
That’s the message we’d like you to take on board today. The up-and-down market you’ve seen since late 2009 isn’t going anywhere. At the end of last year we said the stock market would go up and down but that by the end of the year we wouldn’t be surprised if it was back where it started.
With two weeks to go until the end of the year, it looks as though we’ve got that wrong. But it will only take a 10% drop from this level (like in 2010, 2011, and 2012) for us to be right about the level…albeit wrong about the timing.
Naturally, we hope that doesn’t happen. The stock market is one of the best places to build wealth. But due to the volatility it has put off a lot of investors in recent years.
In short, as we’ve said all year, don’t abandon the stock market, because there are few better places to grow your wealth. And right now, despite the recent good run for Australian stocks, we still see a lot of good, beaten-down Aussie stocks that are set to bounce back if investors gain more confidence.
Cheers,
Kris
From the Port Phillip Publishing Library
Special Report: The Fuse is Lit
Daily Reckoning:
Why Uranium Stocks Could be Worth Another Look
Money Morning:
Why We Should Abolish the Fed
Pursuit of Happiness:
Gun Control: Did Obama Shed Tears for These Kids?
Australian Small-Cap Investigator:
Why Invest In Small-Cap Stocks? And Why Now?
