By MoneyMorning.com.au
Since 29 June 2001 (when they first began to measure it), the ASX financials index (ASX: XFJ) has lost 6.47%.
Some bank stocks in the financials index, like Commonwealth Bank of Australia (ASX:CBA) for instance, are up. CBA is up around 64.22%. But to even it out, other stocks in the index have gone down just as much.
It’s like an apothecary scale…
Some of the stocks are winners. Some are losers. And they balance each other out. Yes. It’s boring.
What is interesting is what might happen next…
As you will see on the chart below, this index has returned to an important level.
XFJ spent most of 2003 stuck in a range right on this level – the 4000 level. Then it started a massive run that saw it hit 7500. That was roughly an 87.5% gain at the time… And if it were to do it again, it would still be roughly an 87.5% gain on today’s price.
So the question is, will it happen again?
The position of the banks today is different from what it was in 2003. Back then, as you can see in the chart on the left below, credit was growing at a rate of around 15%…
Growth in housing debt was at a 15-year high… Personal debt was at a 3-year high… And business debt was just starting its mammoth rise… There seemed no end to credit growth in sight.
Financial shares reflected this. As you saw before, they gained 87.5%. But today things are different…
As you can see on the chart to the right, credit growth is plumbing near 20-year lows.
Housing credit is at its lowest point since 1981. Business credit growth is at its lowest rate since 1991.
And as a recent report from the Sydney Morning Herald shows, personal debt… Aussie credit card debt… hit a record high of $50 billion in November 2011. The report says…
‘The amount of credit card debt owed by Australians has increased sharply over the past decade, blowing out by more than 30 cent in the past five years alone.
‘However, the use of credit cards has slowed in the past year as consumers grew more cautious. The average credit card balance has edged up by only 1 per cent in the past year.’
So, what could happen next?
The index is trading back in the same range it was stuck in between mid-2001 and mid-2004. Right now it’s at the mid-point between the recent high and low. And that suggests it’s set to break out, to one side or the other.
Maybe that means, right now, if you’re a trader, bank stocks could be a way for you to turn a quick profit… providing you can pick which way they’re going to break out from the current range – up or down.
Aaron Tyrrell
Editor, Money Morning
P.S. Slipstream Trader, Murray Dawes uses charts to try and work out where the market will move next. In other words, he doesn’t care whether the market goes up or down. As long as it moves he’s always confident he can make money for his traders. As it happens, Murray has a view on the Aussie banking sector and has just taken part profits in one of the trades. If you’d like to get a taste for how he analyses the markets, check out his free weekly stock market update on YouTube by clicking this stock market update link.
P.P.S Click on trader for the No 1 lesson you must learn to trade successfully…
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