As any half decent stockbroker can tell you, at any one point in time they can find a number of reasons to buy any stock and any market, and at the same time also be able to list a number of reasons to sell the same stock and the same market.
That’s how broking works. Finding buyers and sellers at the same time. So lets do that:
REASONS TO SELL
- The anniversary of the 1929 crash in the US was last night. Irrelevant but spooky.
- The All Ordinaries index has just completed a "Death Cross" for the first time in 3 years (the 50 day moving average drops through the 200 day moving average).
- US stocks are over-priced.
- Peak earnings for US technology stocks.
- The UK Budget last night included a 2% tax on the turnover of any stocks with more than 500bn BBP of turnover. They are targeting Amazon, Google and Facebook. Other countries (wake up ScoMo) will/should follow suit.
- Rising US interest rates.
- The Italian financial crisis.
- The US trade war with China.
- The Chinese economic growth slowdown.
- The end of Quantitative Easing.
- Trump could be neutered by the mid-term elections on November 6. He has been very good for the financial markets, the biggest short term risk is that he loses power.
- The Australian dollar falling (international investors lose interest in Australian stocks).
- And the Royal commission creating a massive hangover for 45% of our stock market.
Or we could go glass half full:
REASONS TO BUY
- The market has already had a correction.
- The ASX 200 is technically oversold.
- There are 100 stocks in the All Ordinaries that have an RSI below 30 (are oversold). Here they are in market cap order:
- We should buy when others are fearful.
- Australian stocks aren’t as expensive as US stocks.
- There is nothing obviously wrong other than “price” and sentiment.
- Our financial sector is already on its back and looking “cheap” courtesy of the Royal Commission.
- The bank results season could resurrect an oversold sector – Financials account for 45% of the market. Note the banks outperforming today with ANZ results tomorrow, NAB on Thursday, Macquarie on Friday and Westpac on Monday.
- The mid-term elections in the US could see Trump romp home and the pro-growth agenda continue.
- The US interest rate trajectory could easily be delayed, the chances of a US interest rate rise in December are down from 78% to 67% in a week. Even if they rise, by historical standards interest rates are still very benign.
- Inflation is inching up which allows business to raise margins.
- Next year will very likely bring a China-US trade deal.
And who knows, the Liberal party might even see a rating resurrection that negates the risk of Labor getting rid of cash refunds for franking credits. Clutching at straws perhaps!
In the end, the obvious message is that nobody really knows whether the market is going to bounce or plunge again, so the standard advice applies. Don’t bother thinking you are smart enough to predict the next move, just wait until it happens and one day you wake up more concerned about missing out on the rally than fearing another fall. (The initial bounce is going to be savagely fast).
We have made our decision. We have significantly cashed up the portfolios we run at Marcus Today and having done so have one mission, deciding what to buy and when to buy. We already know what we are going to buy (what we've sold), when to buy is all that matters now.
We still have elevated cash levels (over 60% in cash in both our portfolios) and have been in no hurry to put it that cash work. A solid “no real excuse” gain in our market yesterday saw the sellers step back for a moment and the buyers smashed the door down.
Clearly, the buyers are ready to buy given the excuse. The willingness to buy has highlighted that the Australian market is not that expensive, the valuation problems are in US technology stocks not Australian financials (which are on their backs) and industrials.
There are now 100 stocks in the All Ordinaries that are oversold (RSI below 30). When the bounce comes it will be rapid. In every protracted market sell-off there are sharp bounces.
The market feels like it’s ready to forgive and forget if only for a moment and we are concerned not to miss the bottom even if it is a false dawn (we can always sell again).
Almost bought a few things this morning... but didn't.
Marcus Padley is the author of the Marcus Today stock market newsletter. To sign up for a 14-day free trial please click here.